SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2002
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COMMISSION FILE NO.: 0-26322
EAGLE BUILDING TECHNOLOGIES, INC.
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(Name of Small Business Issuer in its Charter)
Nevada 88-0303769
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(State or other jurisdiction (IRS Employer
of incorporation or organization) Identification No.)
700 East Palmetto Park Road, Boca Raton, Florida 33432
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(Address of principal executive offices, including zip code)
(561) 391-7899
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(Issuer's telephone number)
225 N.E. Mizner Boulevard, Suite 502, Boca Raton, FL 33432
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(Former name, former address, and former Fiscal Year,
if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
None None
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(Title of Each Class) (Name of Each Exchange
on which Registered)
Securities registered pursuant to 12(g) of the Act:
Common Stock, par value $.001 per share
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(Title of Class)
Check whether the Issuer (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the Issuer was required to file such
reports) and (2) has been subject to such filing requirements for the past 90
days. Yes { } No {x}
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-B is not contained herein, and will not be contained, to the
best of Issuer's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any amendment to
this Form 10-KSB. (X)
State issuer's revenues for fiscal year ended December 31, 2002: $2,928,164
The aggregate market value of the Registrant's voting stock held by non-
affiliates, based upon the closing sales price for the common stock of $1.40 per
share as reported in the Pink Sheets LLC on June 30, 2003, was approximately
$8,950,000 based on a total of 6,388,731 shares, which total excludes shares of
Common Stock held by each officer and director and by each person known to the
Company to own 5% or more of the outstanding Common Stock. Such shares have been
excluded and such persons may be deemed to be affiliates. This determination of
affiliate status is not necessarily a conclusive determination for other
purposes.
EAGLE BUILDING TECHNOLOGIES, INC.
TABLE OF CONTENTS
Page
PART I
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Item 1. Business......................................................... 3
Item 2. Properties....................................................... 6
Item 3. Legal Proceedings................................................ 7
Item 4. Submission of Matters to a
Vote of Security Holders....................................... 13
PART II
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Item 5. Market for Company's Common Equity
And Related Stockholder Matters................................ 13
Item 6. Management's Discussion and
Analysis or Plan of Operations................................. 14
Item 7. Financial Statements and Supplementary Data...................... 16
Item 8. Change in and Disagreements
with Accountants on Accounting
and Financial Disclosure....................................... 16
PART III
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Item 9. Directors, Executive Officers, Promoters
and Control Persons; Compliance with
Section 16(a) of the Exchange Act.............................. 17
Item 10. Executive Compensation........................................... 18
Item 11. Security Ownership of Certain
Beneficial Owners and Management............................... 20
Item 12. Certain Relationships and Related Transactions................... 22
Item 13. Exhibits, Financial Statement
Schedules and Reports on Form 8-K.............................. 23
SIGNATURES ............................................................... 27
1
PART I
Forward Looking Statements
The Private Securities Litigation Reform Act of 1995 provides a "safe
harbor" for certain forward-looking statements. The forward-looking statements
contained in this Form 10-KSB are subject to certain assumptions, risks and
uncertainties. Actual results could differ materially from current expectations.
Among the factors that could affect the Company's actual results and could cause
results to differ from those contained in the forward-looking statements
contained herein is the Company's ability to implement its business strategy
successfully, which will depend on business, financial, and other factors beyond
the Company's control, including, among others, prevailing changes in consumer
preferences, access to sufficient quantities of raw materials, availability of
trained labor and changes in industry regulation. There can be no assurance that
the Company will continue to be successful in implementing its business
strategy. Other factors could also cause actual results to vary materially from
the future results covered in such forward-looking statements. Words used in
this Form 10-KSB, such as "expects", "believes", "estimates", and "anticipates"
and variations of such words and similar expressions are intended to identify
such forward- looking statements.
On February 14, 2002, the Company informed the Securities and Exchange
Commission and requested that trading in the Company's common stock be suspended
because the Company believed that its financial statements for prior years had
to be restated. The Company consented to the entry of a preliminary injunction
brought against it by the Securities and Exchange Commission ("SEC") enjoining
further violations of the Securities laws and proceeded to revise its financial
reports. These events were brought about by the Company's discovery in February
2002 that its CEO, Anthony D'Amato, had falsified reports of its earnings from
operations in India for the years 2000-2001 and that these earnings were
intentionally fabricated by Mr. D'Amato.
Trading in the Company's stock was allowed to resume on March 1, 2002.
2
ITEM 1. BUSINESS
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General
Eagle Building Technologies, Inc. (the "Company") is a Nevada
corporation involved in several facets of the concrete masonry products
industry, including 1) the manufacture of concrete products manufacturing
equipment, plants, and accessories; 2) the wholesale manufacture of masonry
materials for the construction trade; and 3) the development of affordable
housing projects utilizing proprietary masonry construction methods. The Company
also has a holding in an allied building materials business which fabricates
specialty doors and entrance systems.
The Company has certain rights to market the Integrated Masonry
Systems, Inc. ("IMSI") patented technology and trademarks in Mexico, India,
China and Puerto Rico. The Company is attempting to establish itself in the
masonry products and real estate markets by offering a unique high strength
insulated masonry wall system that affords significant advantages in terms of
thermal efficiency, strength, ease of construction and overall cost savings.
(See below "Mortarless Wall Systems")
Operations
Masonry Products Manufacturing Systems
Fleming Manufacturing Company
As of October 2000, the Company acquired all of the issued and
outstanding securities of Fleming Manufacturing Company, Inc. ("Fleming
Manufacturing"), a Missouri corporation located in Cuba, Missouri, from William
M. Fleming ("Fleming") for an aggregate purchase price of $3,875,000. The
Company is financing the acquisition via a Note and purchase money security
interest in favor of Fleming. The Company has negotiated a restructure of the
Fleming Note.
Fleming Manufacturing has been in business for almost 60 years. It is
one of the leading U.S. companies principally engaged in the manufacture of
concrete masonry products machinery, plant systems, components and accessories
and is the leader in the manufacture of mobile block equipment and related
products to the concrete products industry. Fleming Manufacturing makes a mobile
block plant for the production of mortarless block and pavers on site.
Affordable Housing
Eagle Building Technologies of Puerto Rico, Inc.
Eagle Building Technologies of Puerto Rico, Inc. ("EPR") is a
wholly-owned subsidiary of the Company organized and existing under the laws of
the Commonwealth of Puerto Rico in January 2002, for the purpose of producing
the components of high quality advanced mortarless wall systems and delivering
on site erection of the wall systems. EPR is currently producing wall components
under license from IMSI at a five (5) acre facility located in Salinas, Puerto
Rico. The entire production of this facility will be dedicated to facilitating
the Law 124{1} development in Salinas that is contiguous to the production
facility.
3
Salinas Developers Group, Inc.
Salinas Developers Group, Inc. ("SDI"), is a Puerto Rican corporation
of which seventy-five percent (75%) is owned by the Company. The Company agreed
to purchase its seventy-five percent (75%) stock position from existing
shareholders in 2001 and finished paying for its shares in the first quarter of
2002.
SDI is authorized to build approximately 170 Law 124 homes(1) on real
property it owns in Salinas, Puerto Rico. These homes will sell for
approximately $70,000 each. SDI is currently negotiating construction and
permanent take-out financing with Doral Bank in Puerto Rico. SDI has contracted
with JRC Construction, a well respected builder in Puerto Rico to be the General
Contractor for the project and anticipates that JRC Construction will be its
general contractor for subsequent projects.
The Company has identified several projects in addition to the one at
Salinas and the Company has strong expressions of interest from Doral Bank to
provide the required financing for those projects. The demand for durable, cost
efficient, low and moderate income housing in Puerto Rico is very high and the
government of Puerto Rico is committed to increasing the supply of such housing
with a goal of 60,000 units over the next three years.
Concrete Masonry Products
Great Wall New Building Systems
Through its wholly-owned subsidiary, Great Wall New Building Systems,
Inc., the Company controls a concrete products operation in Beijing China under
the auspices of a 55-45 joint venture with a Beijing municipally-owned real
estate development company, Beijing- Mi Yun Real Estate Development Company
("MYRE"). (See MYRE web site HTTP://WWW.FDCMY.COM )
The joint venture facility is situated on a 15 acre site approximately
45 miles northeast of the Beijing Capital International Airport in Beijing Mi
Yun County which is one of several new "satellite cities" under the control of
the Beijing municipality. The area has benefited from over $2 billion in
infrastructure development and is a new center for light industry, higher
education and municipal administration. Thus, Beijing Mi Yun supplies a ready
market for the Company's joint venture products and services, with over 100,000
new housing units planned for new construction in the next several years and
with MYRE involved in a major portion of the construction and development work.
The heart of the operation is a state of the art Fleming "Eagle"
concrete products casting machine capable of producing more than 3 million
concrete masonry units annually per 8 hour shift. In addition the plant
manufactures local product using traditional Chinese "wet cast" methods and is
presently producing pavers for several MYRE projects using this method pending
the shipment of molds and accessories for high-speed mass production of such
products starting in mid Summer 2003.
The market for concrete masonry products in Beijing is especially
promising given the anticipated spike in residential construction prior to the
2008 Olympics and in light of governmental policies to prohibit the use of red
clay masonry due to the deleterious effect of the harvesting of this clay upon
agricultural topsoil.
Given the relative assuredness of the local market, the Company's main
challenge is to install sufficient production capacity to meet known and
anticipated demand and maximize output. To this end, the Company is coordinating
supply arrangement for the China operation among its Great Wall subsidiary,
Fleming and the Chinese joint venture.
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(1) Law 124 is a Puerto Rican housing program that subsidizes the down payment
and financing of homes for low and moderate income families.
4
Specialty Systems
Master Holdings
The Company has concluded arrangements in the acquisition of a minority
interest (16%) of Master Srl ("Master") of Italy (HTTP://WWW.MASTERDOOR.IT),
through Master Holdings LLC, which was formed for the purpose of completing the
Company's previously reported planned acquisition of Master. Master is a
fabricator of advanced design armored doors. Master started designing and
manufacturing armored doors in 1978. Continuous investments in technology and
the development of new products have allowed Master to consolidate its ranking
amongst the leading manufacturers in the Italian market and to successfully
penetrate major European and International markets.
Mortarless Wall Systems
The Company owns an interest in the stock of IMSI, Inc. which owns
patent rights to the IMSI Wall System. The investment in IMSI has been included
in intangible assets as part of the Company's overall plan to secure rights to
the related patents and licenses. This system features insulated reinforced
masonry that is dry-stacked. IMSI blocks have cavities in which insulation is
embedded to provide thermal stability without sacrificing structural integrity.
Mortarless wall systems do not require mortar between the individual blocks but
rather use a system of interlocking materials and an internal reinforcement grid
of cement and rebar in combination with a surface- bonding compound composed of
cement, chopped fiberglass and other materials to provide a weather resistant,
structurally sound and impermeable surface. Other mortarless wall systems
available to the Company vary in some degree from the IMSI system with the
primary deviation being in the quality of thermal insulation.
The advantages of the mortarless wall systems delivered by the Company
are:
* Cost competitive
* Airtight
* Engineered for seismic conditions * Engineered for hurricane conditions
* Low maintenance costs * Environmentally friendly * Quick installation
* Ease of installation; semiskilled workers can be quickly and easily
trained
* Flexibility of use; commercial, industrial, residential,
institutional, and governmental construction
Other Subsidiaries
As previously reported, the Company has divested its ownership in
Business Dimensions Inc. and has ceased all connection with Eagle Fuller
International and Eagle Building Technologies, Private Ltd. of India and Jayant
Tipnis Consultants, PL (JTCPL). In addition, the company's subsidiary, Bullhide
Corporation ceased operations in the first quarter of 2002. The Company has
closed Eagle Italia Srl, which was formed to acquire Master. In lieu thereof,
the Company, as noted above, is an investor in Master Holdings.
Employees
As of December 31, 2002, the Company, inclusive of wholly-owned
subsidiaries had a total of 45 employees broken down as follows: 3 employees at
the corporate headquarters, 2 employees for the China subsidiary and 40
employees for Fleming Manufacturing Corp.
5
Competition
The Company's operations are all specialized niche activities in the
building materials and industrial machinery production sectors. As a result, the
Company believes that competitive risks are fairly low and that its main
challenge is to ensure adequate capacity to respond to specialized market demand
for its products and services. For example, Fleming Manufacturing is one of
three U.S. manufacturers of concrete masonry products manufacturing machinery
and within its sector, total market demand exceeds industrial capacity. Similar
circumstances pertain in China. In Puerto Rico, the Company's development rights
are exclusive at its operating sites.
Government Regulation
The Company's use of proprietary masonry construction methods is
subject to local building code approval and/or compliance and governmental
inspections. The Company's sale of homes in Puerto Rico is also subject to the
requirements of Public Law 124 which defines certain aspects of eligibility for
subsidized housing.
In China, the Company's joint venture operations are subject to The Law
Of The People's Republic Of China On Joint Ventures Using Chinese and Foreign
Investment and Beijing municipal laws and regulations based thereon. In
addition, all products produced in China are subject to various quality control
standards, certifications and quality inspections.
ITEM 2. PROPERTIES
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The Company currently manufactures products at two (2) facilities,
leases two (2) separate facilities for administrative and manufacturing
purposes, and utilizes one (1) office maintained by joint venture partners at no
cost, as follows:
Boca Raton, Florida - The Company maintains its principal
administrative offices via a sublease from M.A. Berman Company. M.A. Berman
Company is owned and controlled by Meyer A. Berman, the Company's Chairman and
largest shareholder. The sublease is based upon an oral month-to-month
understanding whereby the Company pays M.A. Berman Company $20,000 per month for
the space, telephone and internet connections, office equipment, and the
services of four (4) M.A. Berman Company staff members for administrative
support
Salinas, Puerto Rico - Salinas Developers Group, Inc. owns twenty (20)
acres of developmental real property in Salinas, Puerto Rico. The twenty (20)
acres is subject to a note and purchase money mortgage in the approximate amount
of $500,000. The note has matured and the Company has agreed to pay this note at
the closings of the first 23 homes sold anticipated to be in July of 2003.
Additionally, the twenty (20) acres is subject to liens filed by general
contractors for services rendered in connection with improvements to the real
property.
Salinas, Puerto Rico - Eagle Building Technologies of Puerto Rico, Inc.
owns five (5) acres of real property in Salinas, Puerto Rico. The real property
is free and clear of all liens and encumbrances. The property is improved and
suitable to house EPR's administrative offices and production facilities.
Cuba, Missouri - The Company owns a 20,000 square foot manufacturing
and warehouse facility located in Cuba, Missouri (outside St. Louis). The
facility is approximately 35 years old. The facility encompasses the
manufacturing operation of Fleming Manufacturing Company, a wholly-owned
subsidiary of the Company. The facility is used to manufacture mobile block
plants. The facility has no room for expansion as demand may necessitate;
however, the Company also leases an additional 32,000 square foot manufacturing
facility conveniently located adjacent to the owned facility at a cost of $4,000
6
per month. The lease is for a ten (10) year term commencing January 1, 2001. The
Company has a right of first refusal to acquire the leased premises and an
option to purchase the leased premises during the initial ten (10) year term of
the lease for the appraised value of the premises. The facilities leased by the
Company are well maintained. Both facilities are adequately insured and in
substantial compliance with environmental laws and regulations.
Mi Yun, China - The Mi Yun joint venture owns its land and improvements
including a factory building and on-site administrative offices and various
other adjacent buildings used for an in-house materials laboratory and employee
cafeteria.
ITEM 3. LEGAL PROCEEDINGS
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From time to time, the Company may be involved in litigation that
arises in the normal course of business operations.
Securities and Exchange Commission
SEC v. Eagle Building Technologies, Inc. and Anthony D'Amato (Civil
Action No. 1:02CV397ESH D.D.C.) The SEC and the Company agreed to settle the
lawsuit in May 2002. The Court signed the settlement papers on or about May 30,
2002, entering a permanent injunction against the Company for any future
violations of Sections 10(b), 13(a), 13(b)(2)(A), and 13(b)(2)(B) of the
Securities Exchange Act of 1934, and Rules 10b-5, 12b- 20, 13a-1, 13a-13, and
13b2-1. The Company made no admission or denial of liability in connection with
the settlement.
In March 2003, Anthony D'Amato was ordered to forfeit $56,623 in
trading profits plus prejudgment interest of $5,637, and agreed to cancel
367,742 shares of Eagle Building stock, including 286,500 shares of stock he
received as compensation for acting as an officer and director of the Company
and an additional 81,242 shares to satisfy the requirement that he repay his
trading profits and prejudgment interest that had been given as part of his
compensation.
In October 2002, D'Amato consented to entry of a permanent injunction
that prohibits him from making false statements in press releases and reports
made to the SEC, creating false business records, and providing false
information to the Company's auditors in violation of the anti-fraud, periodic
reporting and internal record-keeping provisions of Sections 10(b) and 13(b)(5)
of the Securities Exchange Act of 1934 and Rules 10b-5, 12b-20, 13b2-1, and
13b2-2. D'Amato is also barred from serving as an officer or director of any
publicly traded company.
Mr. D'Amato pleaded guilty in a criminal case to one count of
securities fraud in the Southern District of Florida before United States
District Judge Jose E. Martinez, and is scheduled to be sentenced criminally for
his conduct in relation to the Company in July. Pursuant to the Victims Recovery
Act, the Company intends to file a claim for restitution.
Class Actions
As previously reported, the Company has been named as a defendant in
various class action suits alleging securities violations by Eagle pursuant
generally to Section 10(b) and 20(a) of the Exchange Act and Sec Rule 10b-5
promulgated thereunder. The complaints generally allege that Eagle intentionally
perpetrated a fraud upon the public by the dissemination of false and misleading
information.
By order dated July 31, 2002, the United States District Court for the
Southern District of Florida consolidated all of the class action cases,
appointed certain parties as lead plaintiffs and the attorneys for the
plaintiffs as lead co-counsel for the class. The new case is styled In Re Eagle
Building Technologies, Inc., Securities Litigation, Case Number
02-80294-CIV-RYSKAMP.
7
Kelso Capital et al. v. Eagle Building Technologies, Inc., Anthony
D'Amato, Paul-Emile Desrosiers and Tanner + Co. (Southern District of Nevada,
Civil Case No. CV-S-02-0367-PMP-PAL, filed March 15, 2002)
Alan Davidson and Victor Kashner v. Eagle Building Technologies, Inc.
(United States District Court, Southern District of Florida, Case No.
02-80323-CIV-RYSKAMP, filed March 26, 2002)
Marc Newman, Kenneth Wait, Dr. Anthony Roberts and Dana Davis, et al.
v. Eagle Building Technologies, Inc., Anthony D'Amato, Dr. Ralph Thomson, Andros
Savvides, Wilfred G. Mango, Jr., Donald Pollock, Robert Kornahrens, Charles A.
Gargano, Samuel Gejedson, Meyer A. Berman and Tanner + Co. (United States
District Court, Souther, District of Florida, Case No. 02-80294-CIV-RYSKAMP,
filed April 5, 2002)
Inglewood Holdings, Ltd. V. Eagle Building Technologies, Inc., and
Anthony D'Amato (United States District Court, Southern District of Florida,
Case No. 02-80340-CIV-MIDDLEBROOKS, filed April 16, 2002)
David D. Pain v. Eagle Building Technologies, Inc. and Anthony D'Amato
(United States District Court, Southern District of Florida, Case No.
02-80372-CIV-HURLEY, filed April 24, 2002)
Jeff Gass v. Eagle Building Technologies, Inc., Anthony D'Amato,
Paul-Emile Desrosiers and Tanner + Co. (United States District Court, District
of Nevada, Case No. CV-S-02-0640-PMP-RJJ, filed May 6, 2002)
[Robert Gluck v. Eagle Building Technologies, Inc. et al. (United
States District Court, Southern District of Florida, Case No. 02-CV- 80302,
filed April 8, 2002{2})]
Guerrilla IRA Partners, L.P. v. Eagle Building Technologies, Inc. and
Anthony D'Amato (United States District Court, Southern District of Florida,
Case No. 02-CV-80403, filed May 3, 2002)
8
Additional Securities Litigation
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Deborah Donoghue v. Eagle Building Technologies, Inc., U.S. District
Court for the Southern District of New York Case 03CV2472. This stockholder's
derivative suit seeks to recover alleged "short swing" profits realized by
certain beneficial owners of the Company's common stock in violation of Section
16(b) of the Securities Exchange Act of 1934. The Company's position is that the
claims are satisfied because the proceeds of such sales in excess of any
imputable profits were given over to the Company and/or, in any case, many of
the transactions identified in the claims are exempt transactions. A pre-trial
conference has been scheduled in the case.
Mark Neuman v. Anthony D'Amato, et al. and Eagle Building Technologies,
Inc. (as a nominal defendant) (15th Judicial Circuit in and for Palm Beach
County, Florida, Case No. CA 02-05560-AG). This complaint was filed on May 9,
2002, as a shareholders derivative action alleging breach of fiduciary duty,
misappropriation of confidential information, and contribution and
indemnification. The Plaintiff is seeking damages in excess of $15,000. The
Company filed a motion to dismiss the complaint on July 3, 2002. The Court has
not yet issued a ruling on the motion. No discovery has occurred and no trial
date has been set. We are unable to express an opinion regarding the outcome of
this litigation or as to any potential loss or range of loss to the Company in
the event that either a favorable or unfavorable outcome results. Co-Defendant
Robert Kornahrens recently filed a cross-claim for legal fees against the
Company.
Anthony I. Bentley, James Bruce Whiting and Beverly D. Whiting v. Eagle
Building Technologies, Inc. (Third Judicial District Court, Salt Lake City,
Utah, Case No. CA 02-0901808). The complaint alleges breach of contract, unjust
enrichment and conversion for failure to issue securities to the Plaintiffs.
Trust #191190MAN(A) v. Eagle Building Technologies, Inc. et al. (US
District Court, District of Utah, Central Division, Case No. 02-CV-202CV-
0502ST). This is an action brought by a Trust whose agent is Clealon B. Mann.
The Trust's sole cause of action is brought under RICO and alleges that Eagle
failed to remove the Rule 144 legend from 8,333 shares of Eagle stock, claimed
the shares were attached pursuant to a pending lawsuit, and titling shares in
the name of Clealon Mann. Plaintiff's claimed damages are the amount of the
Eagle shares at the time it would have sold them. However, Plaintiff does not
indicate when such a sale would have occurred. As with the McConkie lawsuit,
General Securities Transfer Agency (GSTA) and Iverna Morgan, GSTA's president,
were named as defendants and Eagle has agreed to indemnify them. The Company is
defending this action based upon the following grounds: (a) the shares were
titled in the name of the trust, and listed Mann only as trustee; (b) the shares
were issued without restriction in August 2000; and (c) at least two writs of
execution were issued in 2001, both of which specifically attached the Trust's
shares and prevented the sale of said shares. The Company has filed an answer to
the Complaint denying all allegations.
F. Briton McConkie and Stephen R. Fey v. Eagle Capital International,
and General Securities Transfer Agency, Inc. (United States District Court for
the Central Division of Utah, Civil Case No. 2:01-CV0-0950 ST). This is an
action brought by Brinton McConkie and Stephen Fey on the grounds of breach of
contract. The plaintiffs allege that Eagle wrongfully refused to transfer
200,000 shares, represented by certificates number 432114 and 432119. Plaintiffs
have produced affidavits of Doug Dent and Ralph Thompson, former members of the
Eagle Board of Directors, in which both men state that the shares were properly
issued. The potential damages in this matter would likely be the value of the
shares in April 2001, when Plaintiffs initially requested the shares
transferred. The Company's asserted defense is that the shares in question were
never properly issued and there was a lack or failure of consideration.
Discovery has just begun. Additionally, GSTA, the agency handling Eagle's stock
certificates, was named as a defendant. Eagle has agreed to indemnify GSTA in
this matter.
9
Other Litigation
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Polysolutions Corp. and Bullhide Liner of Broward County, Inc. v. Eagle
Capital International, Inc. (14th Judicial Circuit Court in and for Palm Beach
County, Florida, Civil Case No. CA-01-9017AB). The complaint was filed on
September 4, 2001. On or about April 23, 2002, Plaintiffs sought to amend the
complaint to name Anthony D'Amato, Ralph Thomson, Richard Lahey, Andros
Savvides, Wilfred Mango, Donald Pollack, Robert Kornahrens, Charles Gargano,
Samuel Gejdenson, Meyer Berman, Howard Ash, and Bruce Mauldin as individual
defendants. The Amended Complaint alleges counts for breaches of contract, fraud
in the inducement and breach of fiduciary duty. The Company is presently
substituting the law firm of Adorno and Yoss, located in Miami, West Palm Beach,
Boca Raton and Fort Lauderdale, and Naples Florida, as counsel in this matter. A
cross claim was recently filed by former Director Kornahrens in this matter,
complaining that the Company was failing to honor its obligations to defend him.
The Company believes that this cross claim will be withdrawn in light of the
substitution of new counsel.
Actionable Intelligence Technologies, Inc. v. Eagle Building
Technologies, Inc. (15th Judicial Circuit in and for Palm Beach County, Florida,
Civil Case No. CA 02-03197 AB). A complaint was filed on March 12, 2002, by a
company based in San Diego, California, arising out of the Company's alleged
breach of a contract between the parties, and seeking damages in excess of
$15,000. The plaintiff claims that the Company owes more than $820,000.00 for
consulting services rendered, and up to $5,000,000.00 for services that were to
be performed in the future. On April 30, 2002, the Company filed an answer to
the complaint denying liability and asserting several affirmative defenses.
Discovery is in its preliminary stages. No trial date has been set, but the case
is subject to mandatory mediation. Failing settlement, the Company intends to
defend this action vigorously. We are unable to express an opinion regarding the
outcome of this litigation or as to any potential loss or range of loss to the
Company in the event that either a favorable or unfavorable outcome results. The
Company is presently substituting the law firm of Adorno and Yoss, located in
Miami, West Palm Beach, Boca Raton and Fort Lauderdale, and Naples Florida, as
counsel in this matter.
Taskin Ticaret, LTD. v. Fleming Manufacturing Company, Inc. (Circuit
Court for Crawford County, Missouri, Case No. CV100-269CC). A judgment of
$119,215 was entered into against Fleming on May 29, 2002 following a two day
jury trial. Because all of the assets of Fleming serve as collateral to lending
institutions or other secured creditors, Fleming does not have the authority or
ability to pay the judgment. The matter is on appeal.
J.C. Group Corp. and Jose A. Camacho v. Salinas Developers, Inc., Eagle
Building Technologies (Civil No. G-CD2002-0109; Sala 302) On April 18, 2002,
Plaintiffs J.C. Group, Inc. ("J.C. Group") and Jose A. Camacho ("Camacho") filed
a complaint against Salinas Development Group, Inc. ("SDG"), a Puerto Rico
corporation controlled by the Company and Eagle Building Technologies, of Puerto
Rico, Inc. ("Eagle-PR"), a wholly-owned subsidiary of the Company in the Federal
District Court of the Commonwealth of Puerto Rico claiming $1,260,299 plus
damages and legal fees. SDG timely filed the Answer to the Complaint and a
Counterclaim. SDG alleges in its Counterclaim that Plaintiffs owe $4,110,000 to
SDG on account of fund deviation, false and excessive invoicing and damages.
Eagle-PR filed a motion for summary judgment based on the fact that it is not
liable for the acts of SDG and that Eagle-PR is not the stockholder of SDG. In
addition, SDG filed a Third Party Complaint against Camacho for $5,910,000
claiming: 1) poor performance as project manager; 2) fund deviation; 3) false
invoicing; 4) purchase of land in his own name with SDG funds; 5) breach of
fiduciary duty; 6) interference with SDG's business; and 7) failure to make
capital contributions. On June 20, 2002, Plaintiffs filed an Amended Complaint
against SDG and Eagle-PR, and increased the amount claimed to $2,872,857.29,
including the lost profits of Camacho. As of the date of this filing, because of
the complex nature of the matters involved, the outcome of this case cannot be
predicted.
10
Paul-Emile Desrosiers v. Eagle Building Technologies, Inc. (15th
Judicial Circuit in and for Palm Beach County, Florida, Civil Case No. CA
02-03431 AA). This is an action filed against the Company on April 1, 2002, by
the former President and Chief Executive Officer of the Company seeking damages
in excess of $15,000 for allegedly owed compensation and reinstatement as an
officer and director. The Company filed a motion to dismiss five of the six
counts in the complaint; the Court heard oral argument on June 28, 2002. On July
25, 2002, the Court dismissed without prejudice the counts seeking declaratory
relief and damages for retaliation, while dismissing with prejudice the counts
requesting injunctive relief. The only count remaining at the time of this
Report is Desrosiers's claim for Breach of Contract. Discovery is in its
preliminary stages. The Company is presently substituting the law firm of Adorno
and Yoss, located in Miami, West Palm Beach, Boca Raton and Fort Lauderdale, and
Naples Florida, as counsel in this matter.
Jennifer Nina v. Eagle Building Technologies, Inc. (15th Judicial
Circuit in and for Palm Beach County, Florida, Civil Case No. CA 02- 4297AE).
This complaint was filed April 10, 2002, alleging claims for unlawful
termination, retaliation, breach of contract and unpaid wages, and seeking
damages in excess of $15,000.00. On or about May 6, 2002, the Company filed a
motion to dismiss certain claims, which alleged retaliatory discharge. The
Court, by order entered June 26, 2002, granted that motion, dismissing those
claims without prejudice. Discovery is in the preliminary stages. A trial date
is set, but the case is subject to mandatory mediation. Failing settlement, the
Company intends to defend this action vigorously. We are unable to express an
opinion regarding the outcome of this litigation or as to any potential loss or
range of loss to the Company in the event that either a favorable or unfavorable
outcome results. The Company is presently substituting the law firm of Adorno
and Yoss, located in Miami, West Palm Beach, Boca Raton and Fort Lauderdale, and
Naples Florida, as counsel in this matter
Julio Cruz, Jr. v Eagle Building Technologies, Inc. ((15th Judicial
Circuit in and for Palm Beach County, Florida, Civil Case No. CA 02- 005668-AF).
This is an action filed on May 15, 2002, by a former employee of the Company
seeking damages in excess of $15,000 for wrongful termination, retaliation,
unpaid wages, and breach of contract. The Company filed a motion to dismiss
certain claims, which alleged retaliatory discharge. The Court has not yet ruled
on that motion, although Plaintiff's counsel has agreed to entry of an order
dismissing these claims without prejudice. Discovery is in the preliminary
stages. No trial date has been set. A trial date is set, but the case is subject
to mandatory mediation. Failing settlement, the Company intends to defend this
action vigorously. We are unable to express an opinion regarding the outcome of
this litigation or as to any potential loss or range of loss to the Company in
the event that either a favorable or unfavorable outcome results. The Company is
presently substituting the law firm of Adorno and Yoss, located in Miami, West
Palm Beach, Boca Raton and Fort Lauderdale, and Naples Florida, as counsel in
this matter.
Gina Nicoleau v. Eagle Building Technologies, Inc. (15th Judicial
Circuit in and for Palm Beach County, Florida, Civil Case No. CA-02- 05675-AH).
This complaint was filed on June 14, 2002, by a former employee of the Company
seeking damages in excess of $15,000 for wrongful termination, retaliation,
unpaid wages, and breach of contract. Plaintiff's counsel has advised us that he
intends to amend the complaint to drop the retaliatory discharge claims.
Discovery is in the preliminary stages. A trial date is set, but the case is
subject to mandatory mediation. Failing settlement, the Company intends to
defend this action vigorously. We are unable to express an opinion regarding the
outcome of this litigation or as to any potential loss or range of loss to the
Company in the event that either a favorable or unfavorable outcome results. The
Company is presently substituting the law firm of Adorno and Yoss, located in
Miami, West Palm Beach, Boca Raton and Fort Lauderdale, and Naples Florida, as
counsel in this matter.
11
A.R.H. Family et al. v. Eagle Building Technologies, Inc., Cause Number
GN203813, 345th Judicial District, Travis County, Texas.; La Petrona Ltd. v.
Eagle Building Technologies, GN300161, 250th Judicial District, Travis County
Texas. These suits allege that the Company fraudulently solicited investment
monies from a syndicate of individual investors organized by their investment
advisor Lee Urbina. The Company takes the position that the fraud was
perpetrated on these investors by Anthony D'Amato on his own account and without
the knowledge of the Company through the creation of an investment vehicle
entirely under his personal control, without authorization of the Company, and
for his own purposes.
Eagle Building Technology Inc., v. Zurich American Insurance Comapany,
02-22611-CIV-Ryskamp, U.S. District Court for the Southern District of Florida.
This case approved a settlement between the Company and its insurance carrier
whereby certain funds were released to the Company pursuant to a binder for D&O
and liability coverage. Under the terms of the Settlement, the former officers
are barred from claiming coverage under the binder and the funds are available
to the Company for the costs of defending liability claims asserted against the
Company.
IMSI, Inc. v. Eagle Building Technologies, Inc., U.S. District Court,
Central Division, Utah. The suit seeks damages and an injunction for alleged
infringement of IMSI patents related to the Company's use of the IMSI system in
Puerto Rico. The Company is of the view that the claims have no merit. The
Plaintiff has not moved for specific relief in connection with the Company's
projects in Puerto Rico.
Threatened Litigation
Claims by Cheryl Ray. Ms. Ray is the surviving spouse of Herbert Ray, a
founding member of IMSI. Upon Herbert's death, Ms. Ray received 2,000,000 IMSI
shares. In January 1999, Ms. Ray agreed to exchange her IMSI shares for Eagle
Shares. Ms. Ray alleges that in June 2000, Anthony D'Amato, then President and
CEO of Eagle, informed her that her original IMSI shares were being cancelled
and that there had been insufficient consideration for the 1999 stock exchange.
According to Ms. Ray, she then agreed to return all but 500,000 common shares.
Ms. Ray now alleges that she was defrauded by Mr. D'Amato and Eagle. In November
2001, she issued a demand letter for $2,500,000, or the value of her original
shares. In February 2002, Ms. Ray threatened legal action.
12
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
---------------------------------------------------
None.
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
--------------------------------------------------------
The Company's common stock began trading on the National Association
for Securities Dealers, Inc.'s OTC Bulletin Board in the last quarter of 1996,
and is currently trading under the symbol "EGBT". Set forth below is the range
of high and low bid information for the Company's common stock for the two most
recent fiscal years. This information represents prices between dealers and does
not reflect retail mark-up or mark-down or commissions, and may not necessarily
represent actual market transactions.
Fiscal Period High Bid Low Bid
------------- -------- -------
2001:
-----
First Quarter..................... $ 5.58 $ 1.68
Second Quarter.................... 7.29 2.50
Third Quarter..................... 8.59 3.35
Fourth Quarter.................... 12.10 5.25
2002:
-----
First Quarter..................... $ 12.40 $ 1.38
Second Quarter.................... 3.95 2.30
Third Quarter..................... 3.08 2.30
Fourth Quarter.................... 2.95 1.20
2003:
-----
First Quarter..................... $ 3.25 $ 1.00
Second Quarter
(through June 30, 2002)......... $ 2.30 $ 1.05
As of June 30, 2003, there were approximately 532 record holders of the
Company's outstanding Common Stock. Since additional shares of the Company's
Common Stock are held for stockholders at brokerage firms and/or clearing
houses, the Company was unable to determine the precise number of beneficial
owners of its Common Stock as of June 30, 2003.
The Company has never declared or paid cash dividends on its capital
stock and the Company's Board of Directors intends to continue that policy for
the foreseeable future. Earnings, if any, will be used to finance the
development and expansion of the Company's business. Future dividend policy will
depend upon the Company's earnings, capital requirements, financial condition
and other factors considered relevant by the Company's Board of Directors and
will be subject to limitations imposed under Delaware law.
13
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
---------------------------------------------------------
The analysis of the Company's financial condition, liquidity, capital
resources and results of operations should be viewed in conjunction with the
accompanying financial statements including the notes thereto.
General
The Company was incorporated in Nevada in 1994 under the name IAC, Inc.
and has since changed its name to Eagle Building Technologies, Inc. During 1998,
the Company acquired the assets of IMSI CapFund, Inc. ("CapFund"). CapFund
utilized the IMSI{R} Block System which, today, through licensing agreements
between the Company and IMSI, is the preferred technology of the Company.
As of December 31, 2002, the Company controlled and operated
subsidiaries including the following consolidated subsidiaries, Great Wall
Building Systems, Inc., Fleming Manufacturing Company, Salinas Development
Corporation and Eagle Building Technologies of Puerto Rico and a 16% interest in
Master Holdings.
Financial Condition
At December 31, 2002, the Company had total assets of $10,699,268 as
compared to total assets of $15,876,397 at December 31, 2001; total
liabilities(2) of $25,704,104 as compared to $18,954,253 in 2001; total
stockholders' deficit of $16,173,584 as compared to $4,246,604 in 2001. The
increase in stockholders' deficit during the year ended December 31, 2002 was
the result of operational losses in the year 2002, the impairment of the value
of certain tangible and intangible assets due to changes in conditions and
assumptions and settlement costs claims and litigation. Impairment losses and
settlement costs claims and litigation recorded during the years ended December
31, 2002 and 2001 were as follows:
2002 2001
---- ----
Impairment of goodwill related to the Company's
investment in:
Great Wall Building Systems, Inc. - $1,696,309
Fleming Manufacturing 1,208,991 -
Salinas Development 1,096,234 -
Impairment of Investment in Unconsolidated
Subsidiaries:
Master Door - 3,581,183
China Joint Venture - 622,618
Impairment of Property and Equipment - 399,600
Impairment of License Rights 4,030,797
Settlement Costs Claims and Litigation 858,476 4,012,427
- -------------
(2) As a result of the Company's investigation in connection with the
restatement of its 2001 financials, the Company believes that there may be
third parties to whom Anthony D'Amato, the Company's former Chairman and
CEO, has obligated, or made representations purporting to obligate, the
Company, or to issue equity in the Company without the knowledge or
authorization of the Company's Board of Directors. The Company will
continue to investigate and determine the validity of any such third party
claims on a case by case basis. At the time of this filing, the Company
cannot determine the financial impact, if any, to the Company as a result
of Mr. D'Amato's actions.
14
Liquidity and Capital Resources
As of December 31, 2002, the Company's cash totaled $141,066 as
compared to $174,686 at December 31, 2001, a decrease of $33,620. Net cash used
in operations in 2002 was $7,123,502 compared to $6,523,129 in 2001. During the
years 2002 and 2001 the Company did not generate cash flow sufficient to meet
operating requirements. The Company funded this deficiency in 2002 and 2001
primarily through proceeds from notes payable in the approximate amount of
$6,800,000 and $9,500,000 and cash proceeds from the sale of common stock in the
approximate amount of $986,000 and $4,231,000, respectively.
On July 2, 2001, the Company raised $5,340,000 through the issuance of
convertible 10% notes payable due July 2, 2004 including $3,340,000 from Mr.
Meyer Berman, a Director of the Company. In addition, Mr. Berman personally and
through various entities controlled by Mr. Berman made various short-term loans
to the Company through-out 2002 and 2001 which as of December 31, 2002 and 2001
totaled approximately $6,390,000 and $1,380,000.
In addition, the Company will continue to seek out additional financing
in order to continue or expand its operations through-out the foreseeable
future.
Results of Operations
REVENUES - Sales for the year ended December 31, 2002, were $2,928,164
compared to sales of $3,402,915 in 2001. This decrease was the result of
inadequate financing in 2002 available in order to meet sales objectives. The
Company anticipates that sales will increase in 2003 due to anticipated
increased liquidity.
GROSS PROFIT - Gross profit for the year ended December 31, 2002 was
$492,633 compared to gross profit of $485,051 for 2001. Gross profit as a
percentage of sales increased to 16.8% in 2002 compared to 14.3% in 2001.
DEPRECIATION AND AMORTIZATION - Depreciation and amortization for the
year 2002 increased to $1,062,325 as compared to $569,789 in 2001.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES - Selling, general and
administrative expenses were $10,653,985 for the year ended December 31, 2002,
as compared to $11,251,560 for 2001.
IMPAIRMENT COSTS AND SETTLEMENT COSTS AND LITIGATION - Impairment costs
and Settlement Costs and Litigation for the year ended December 31, 2002 totaled
$7,194,498 as compared to $10,312,137 for 2001. Details related to the 2002 and
2001 impairment losses are as follows:
2002 2001
---- ----
Impairment of goodwill related to the Company's
investment in:
Great Wall Building Systems, Inc. - $1,696,309
Fleming Manufacturing 1,208,991 -
Salinas Development 1,096,234 -
Impairment of Investment in Unconsolidated
Subsidiaries:
Master Door - 3,581,183
China Joint Venture - 622,618
Impairment of Property and Equipment - 399,600
Impairment of License Rights 4,030,797
Settlement Costs Claims and Litigation 858,476 4,012,427
15
The Company during 2002 and 2001 recorded settlement costs claims and
litigation in the amount of $858,476 and $4,012,427 related primarily to the
accrual for estimated amounts the Company may owe and the write-down of assets
as the result of anticipated future settlements.
OTHER INCOME (EXPENSE) - Other income (expense) is broken down into the
following three (3) areas for 2002 and 2001: interest expense, gain on sales of
securities, and other. The balances were ($1,106,142), $318,500 and $462,272,
respectively, in 2001. Interest expense in 2001 was primarily the result of the
issuance of common stock for accrued interest.
The 2002 amounts were ($912,541), $0 and $0 respectively. Interest
expense in 2002 included ($355,900) as the result of the issuance of common
stock for accrued interest.
The Company experienced a net loss of $18,268,391 in 2002 compared to a
net loss of $21,404,016 in 2001. As stated above, the net losses incurred
included total impairment costs and settlement costs and litigation of
$7,194,498 and $10,312,137 in 2002 and 2001, respectfully.
Critical Accounting Policies
The SEC's Financial reporting Release No. 60 requires all companies to
include a discussion of critical accounting polices or methods used in the
preparation of financial statements. We have identified the following as
accounting policies that are the most critical to aid in understanding and
evaluating our financial results:
|_| Accounting for costs and revenues associated with real estate
development
|_| Accounting for contingencies associated with our litigation
|_| Evaluation of impairment of intangible assets and our investment in
Master Door
Our policies for accounting for real estate development activities are
described in Note 1 to the financial statements. Currently no sales of homes
have occurred and the Company has incurred significant costs to develop its
Salinas project. These costs have been capitalized and will be charged against
the revenues from the sale of the related homes. The Company has estimated the
total revenues to be received from the sale of the homes and has recorded an
expense for any estimated loss it may incur from the ultimate sale of these
homes. Should the Company incur costs in excess of its estimates or not be able
to realize the estimated revenue from the sale of the homes, an additional
impairment loss would be required to be recognized.
As more fully described under Item 3, the Company has significant
litigation and claims that could result in losses in excess of those provided
for in the financial statements. The Company's policy is to evaluate all claims
and determine whether legal counsel and we believe the likelyhood of an
unfavorable outcome is probable, reasonably possible or remote. For those claims
we evaluate as reasonably possible or remote, no amounts are provided for in the
financial statements. For those claims we believe are probable and estimable we
have recorded an estimated liability in the financial statements. However,
estimating the outcome of litigation and claims and estimating the potential
losses is difficult and therefore the amounts provided for could change and
those changes could be significant.
As described in Note 1 to the financial statements, the Company
evaluates all tangible and intangible assets for impairment and provides for
losses when it is determined that impairment has occurred. Based on the
Company's estimate of future cash flows etc., losses for impairment have been
provided for on many of the Company's assets. These estimates change based on
the economic environment and other factors that could have a significant impact
on the Company's financial statements.
ITEM 7. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
-------------------------------------------
The financial statements required pursuant to this Item 7 are included
in this Form 10-KSB as a separate section commencing on page F-1 and are hereby
incorporated by reference into this Item 7.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
-----------------------------------------------------------
None.
16
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
-------------------------------------------------------------
(a) CURRENT DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY AS OF THE
DATE OF THIS REPORT
Name Age Position
- ---- --- --------
Meyer A. Berman 68 Chairman of the Board and CEO
Steven A. Levy 52 Director and President, Great Wall New
Building Systems
Debbie Keogh 49 Director and President, Fleming
Manufacturing
Alan Jawitz 73 Director
MEYER A. BERMAN joined the Company in February, 2001, as a Director and
in April 2002, assumed the position of Chairman of the Board. Mr. Berman founded
M.A. Berman Co., a registered securities broker-dealer in 1981. Mr. Berman is
regularly consulted for his stock market expertise, and has been quoted and
referenced in financial publications such as The Wall Street Journal and
Barron's as well as appearances on CNBC. Mr. Berman has attended the University
of Illinois, University of Connecticut, and City College of New York.
DEBBIE KEOGH is President of Fleming Manufacturing Company and a
Director of Eagle. At Fleming she is responsible for all facets of Fleming's'
manufacturing operation, sales, marketing and financial matters. Following a
career in professional administration, Ms. Keogh joined Fleming 15 years ago,
where she started in sales and came to learn all aspects of Fleming's business.
STEVEN A. LEVY is a Director and President of the Company's Great Wall
New Building Systems ("GWNBS") subsidiary and Chairman of the joint venture
between GWNBS and the Mi Yun Real Estate Development Company in Beijing China.
Prior to joining the Company, he practiced law in Washington DC, focusing on
international business transactions. He served as a member of the President's
Export Council, Subcommittee on Export Administration and has undertaken
interfaith relations and philanthropic work with the Catholic Archdiocese of
Maryland.
ALAN JAWITZ joined the Board in 2002, following a long career in
private legal practice in Manhattan, where he specialized in litigation. Mr.
Jawitz graduated from Dickinson School of Law and attended Duquesne University.
There are no other significant employees. There are no family
relationships between the above listed persons, nor is there any involvement in
certain legal proceedings except for those described under Item 3. The Company's
directors serve for a term of one year, or until their successors shall have
been elected and qualified.
(b) CHANGES IN OFFICERS AND DIRECTORS FROM JANUARY 1, 2002 THROUGH
PRESENT
ANTHONY D'AMATO joined the Company in April 1999 as a Director and
served as Chairman from May 1999 to February 2002. From June 1, 1999 to February
2002, Mr. D'Amato served as President and CEO of the Company. In February 2002,
Mr. D'Amato resigned as an officer and director of the Company.
DR. RALPH THOMSON joined the Company as a Director in November 1998,
and was later named Corporate Secretary. Dr. Thomson resigned without
disagreement as an officer and director of the Company in January 2002.
ANDROS S. SAVVIDES joined the Company as a Director in November 1999,
and resigned without disagreement in October 2001.
17
ROBERT P. KORNAHRENS joined the Company as a Director in April 2000,
and resigned without disagreement in February 2002.
CHARLES A. GARGANO joined the Company as a Director in June 2000, and
resigned without disagreement in October 2001.
WILFRED G. MANGO, JR. joined the Company in August 2000 as Chief
Operating Officer and Director. Mr. Mango resigned without disagreement as an
officer and Director of the Company in October 2001.
PAUL-EMILE DESROSIERS joined the Company in December 2000 as Vice
President of Operations and Government Relations. In August 2001, Mr. Desrosiers
was appointed President, Chief Executive Officer and a Director. In January
2002, Mr. Desrosiers was terminated as an executive officer of the Company.
RON G. LAKEY joined the Company as Treasurer and Chief Financial
Officer in January 2002. In February 2002, Mr. Lakey resigned as an officer of
the Company.
DR. MARTIN SHUBICK joined the Company as a director in April, 2002 and
resigned without disagreement in June, 2002.
DOUGLAS BENDER joined the Company as a director in March 2003 and
resigned in April 2003.
SAM GEJDENSEN joined the Company as a director in February 2001 and
resigned without disagreement in April 2003.
DAN CURLEE joined the Company as COO, then CEO and as a Director in
January 2002 and resigned as an officer and Director without disagreement in
November 2002.
HOWARD ASH joined the Company as a Director in March 2002 and resigned
without disagreement in December 2002.
J. WARREN BLAKER joined the Company as a Director in October 2002 and
resigned without disagreement in December 2002.
SAUL FENSTER joined the Company as a Director in October 2002 and
resigned without disagreement in December 2002.
ROGER KAHN joined the Company as a Director in March 2003 and resigned
without disagreement in April 2003.
GEORGE GAGER joined the Company as a Director in October 2002 and
resigned without disagreement in April 2003.
RHYS DON POLLOCK was promoted from Chief Financial Officer to Senior
Vice President of Manufacturing in January 2002 and resigned without
disagreement as an officer and director effective December 1, 2002. Mr. Pollock
began his service as a Director in April 2000.
BRUCE MAULDIN joined the Company as a Director in March 2002 and
resigned without disagreement in August 2002.
WYNN WESTMORELAND served as a Director from October 2002 through
November 2002.
MEYER BERMAN took over as CEO in December 2002.
ITEM 10. EXECUTIVE COMPENSATION
----------------------
The following table sets forth summary compensation information with
respect to compensation paid by the Company to the Chief Executive Officer of
the Company ("CEO") and the Company's six most highly compensated executive
officers or key employees other than the CEO, who were serving as executive
officers during the Company's fiscal year ended December 31, 2002 and 2001.
18
SUMMARY COMPENSATION TABLE
--------------------------
Annual Compensation Long Term Compensation
------------------- --------------------------------------
Awards Payments
----------------------- ----------
Restricted Securities
Name of Individual Other Annual Stock Underlying/ LTIP All Other
and Principal Position Year Salary Bonus Compensation Award(s) Options/SARs Payouts Compensation
- ---------------------- ---- ------ ----- --------------- -------- ------------ ------- -------------
Anthony D'Amato 2001 $ 33,000(1) $-0- -0- -0- -0- -0- -0-
President//CEO
Paul-Emile Desrosiers 2001 $625,000(2) $-0- -0- 128,668(3) -0- -0- -0-
President/CEO
Wilfred G. Mango, Jr. 2001 $130,500 $-0- -0- -0- -0- -0- -0-
Chief Operating Officer
Gerry Christensen 2001 $ 90,000 $-0- -0- 25,000(4) -0- -0- -0-
Comptroller 2002 $ 94,250 $-0- -0- -0- -0- -0- -0-
Susan J. Fleming 2001 $186,684(5) $-0- -0- -0- -0- -0- -0-
Debbie Keough 2001 $ 56,979 $-0- -0- -0- -0- -0- -0-
President-Fleming 2002 $ 45,448 $-0- -0- -0- -0- -0- -0-
Steve Levy 2001 $ 81,250 $-0- -0- -0- -0- -0- -0-
President-Great Wall 2002 $ 97,442 $-0- -0- -0- -0- -0- -0-
(1) The Company and Mr. D'Amato dispute amounts paid to Mr. D'Amato which
amounts may be in excess of $2,000,000, and the amount of compensation paid
by the Company cannot be accurately determined at this time.
(2) The Company and Mr. Desrosiers dispute amounts paid to Mr. Desrosiers which
amounts may be greater than $625,000.
(3) Pursuant to an Employment Agreement, Mr. Desrosiers received 128,668 shares
of the Company's restricted common stock valued at $386,004 ($3.00 per
share).
(4) Pursuant to an Employment Agreement, Mr. Christensen received 25,000 shares
of the Company's restricted common stock in 2001 valued at $108,501 ($4.34
per share).
(5) Pursuant to a Stock Purchase Agreement between the Company and William
Fleming, the spouse of Mr. Fleming, Susan J. Fleming, was retained as an
administrative sales coordinator at Fleming Manufacturing Co.
19
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
--------------------------------------------------------------
The following table sets forth, as of the date of this report, certain
information concerning beneficial ownership of the Company's Common Stock by (i)
each person known to the Company to own 5% or more of the Company's outstanding
Common Stock, (ii) all directors of the Company and (iii) all directors and
officers of the Company as a group:
Shares
Beneficially Percentage
Name & Address Position with Company Owned(1) of Shares
- -------------- --------------------- ------------ ----------
Paul-Emile Desrosiers
c/o Eagle Building
Technologies, Inc.
700 East Palmetto Park Road
Boca Raton, FL 33432 Director 132,667(2) 1.3%
Meyer Berman
c/o Eagle Building
Technologies, Inc.
700 East Palmetto Park Road
Boca Raton, FL 33432 Director 3,093,568(3) 30.0%
Steven Levy
c/o Eagle Building
Technologies, Inc.
700 East Palmetto Park Road
Boca Raton, FL Director 30,000 0.3%
Debbie Keogh
c/o Eagle Building
Technologies, Inc.
700 East Palmetto Park Road
Boca Raton, FL Director 30,000 0.3%
Alan Jawitz
c/o Eagle Building
Technologies, Inc.
700 East Palmetto Park Road
Boca Raton, FL Director 122,411 1.2%
The "Urbina" Group (4) Shareholders 514,094 5.0%
All Officers and Directors
as a Group 3,922,740 38.1%
20
(1) As used herein, the term beneficial ownership with respect to a
security is defined by Rule 13d-3 under the Securities Exchange Act of
1934 as consisting of sole or shared voting power (including the power to
vote or direct the vote) and/or sole or shared investment power (including
the power to dispose or direct the disposition of) with respect to the
security through any contract, arrangement, understanding, relationship or
otherwise, including a right to acquire such power(s) during the next 60
days. Unless otherwise noted, beneficial ownership consists of sole
ownership, voting and investment rights.
(2) Mr. Desrosiers claims status as a director. Issues pertaining to his role
in the Company are subject to litigation as reported in Item 3 above.
(3) Includes (i) 2,387,434 shares of Common Stock owned by Meyer A. Berman,
individually (including 2.3 million shares awarded in 2003); and (ii)
358,333 shares of Common Stock owned by Meyer A. Berman, Individual
Retirement Account. The balance of the shares are held by members of Mr.
Berman's immediate family.
(4) The Company considers the "Urbina" group to be acting in concert for
purposes of this Report. The "Urbina" group consists of the following
individuals/entities (with shares in parenthesis): ARH Family Partnership,
Ltd. (32,738); Ray L. Hart Living Trust (537); Corey L. Hart (10,000);
JDCAN3 Holdings, LP (43,363); John R. and Terry E. McLaughlin (72,544);
Jun Ming Trading, Ltd. (66,340); Ken Taylor (13,170); Last Time Around,
L.P. (58,035); Michael Kenoyer (112,252); La Patrona Ltd. (61,896);
Hill-McVey Family Ltd. Partnership (20,029); Paul Faulkner (2,000);
Pamposh Zutshi (6,667); Guadalupe & Ignacio Lozano (466); Intime LP
(10,000); Pricilla, Steven & Havilal Maya (1,000); and Martin Slagter
(3,056).
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
Section 16(a) of the Securities Exchange Act of 1934 (the "Exchange
Act") requires the Company's officers and directors, and persons who own more
than ten percent of a registered class of the Company's equity securities
(collectively the "Reporting Persons") to file reports and changes in ownership
of such securities with the Securities and Exchange Commission and the Company.
Based solely upon a review of (i) Forms 3 and 4 and amendments thereto furnished
to the Company pursuant to Rule 16a-3(e), promulgated under the Exchange Act,
during the Company's fiscal year ended December 31, 2002, and (ii) Forms 5 and
any amendments thereto and/or written representations furnished to the Company
by any Reporting Persons stating that such person was not required to file a
Form 5 during the Company's fiscal year ended December 31, 2002, it has been
determined that Paul-Emile Desrosiers was delinquent with respect to such
person's reporting obligations set forth in Section 16(a) of the Exchange Act.
21
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
----------------------------------------------------
The Company operates in China while holding additional licenses for
Mexico, India, Puerto Rico and Europe pursuant to five (5) licensing agreements
with Integrated Masonry Systems International, Inc. The Company owns thirty-
eight percent (38%) of the issued and outstanding shares of IMSI.
During the period commencing October 2000 to July 2001, Mr. D'Amato
converted loans in the amount of $2,397,416 to the Company into 789,879 shares
of restricted common stock.
On January 26, 2001, the Company's Board of Directors approved a 1-
for-6 reverse stock split of the Company's common stock effective February 5,
2001.
During the period ended December 31, 2001, primarily in July 2001,
Meyer A. Berman and affiliates of Meyer A. Berman, Chairman of the Board of
Directors, loaned the Company a total of $3,340,000. In addition, Mr. Berman
personally and through various entities controlled by Mr. Berman made various
short-term advances to the Company through-out 2002 and 2001 which as of
December 31, 2002 and 2001 totaled approximately $6,700,000 and $1,380,000.
During the period commencing January 1, 2003 through June 30, 2003, Meyer A.
Berman and affiliates of Mr. Berman loaned the Company an additional approximate
net amount of $900,000. In February 2002, Andy Berman and Abby Berman, children
of Meyer A. Berman, loaned the Company a total net amount of $240,000.
During the period ended December 31, 2001, the Company had unsecured
advanced receivables (3) in the aggregate amount of $934,645 from its former
Chairman and CEO, Anthony D'Amato.
In February 2002, Don Pollock, an executive officer and director claims
to have loaned the Company $40,000.
In April 2002, Martin Shubik, a former director, loaned the Company
$30,000.
In May 2002, the Company assigned all of its interest in Business
Dimensions, Inc. to Don Pollock, an officer and director of the Company.
As a result of the Company's investigation in connection with the
restatement of its 2000 and 2001 financials, the Company believes that there may
be third parties to whom Anthony D'Amato, the Company's former Chairman and CEO,
has obligated, or made representations purporting to obligate, the Company, or
to issue equity in the Company without the knowledge or authorization of the
Company's Board of Directors. The Company will continue to investigate and
determine the validity of any such third party claims on a case by case basis.
At the time of this filing, the Company cannot determine the financial impact,
if any, to the Company as a result of Mr. D'Amato's actions.
- ------------
(3) As a result of the Company's investigation in connection with its 2000 and
2001 financials, the Company cannot determine all monies that may be owed to
the Company by Mr. D'Amato.
22
ITEM 13. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
---------------------------------------------------------------
EXHIBIT NO.
- -----------
3.1 Certificate of Incorporation & Certificates of Amendment
Thereto of Registrant*
3.2 By-Laws of Registrant*
10.1(a) Anthony D'Amato Employment Agreement (May 15, 1999 - May 14,
2001) *
10.1(b) Anthony D'Amato Employment Agreement (May 15, 1999 - May 14,
2001)*
10.2 Wilfred C. Mango, Jr. Employment Agreement (August 1, 2000 -
July 31, 2002) *
10.3 Wilfred C. Mango, Jr. Consulting Agreement (August 1, 2000 -
July 31, 2002)*
10.4 Ralph Thompson Employment Agreement (May 15, 1999 - May 14,
2001) *
16.1 Letter of No Disagreement from Christensen & Duncan, CPA's
LC.*
* Filed with December 31, 2000 Form 10-KSB
REPORTS ON FORM 8-K
- -------------------
During the fourth quarter ended December 31, 2000, and through the date
of the filing of this Form 10-KSB, the Company filed reports of Form 8-K as
follows:
(1) On or about November 30, 2000, the Company filed a Report on Form 8-K
announcing that Christensen & Duncan, CPA's LC resigned as the Company's
independent accountants.
(2) On or about December 4, 2000, the Company filed a Report on Form 8-K
announcing that the Company had engaged Tanner + Co. as the Company's new
independent accountants.
(3) On or about January 9, 2001, the Company filed a Report on Form 8-K/A
amending the Forms 8-K filed on or about November 30, 2000 and December
4, 2000.
(4) On or about January 10, 2001, the Company filed a Report on Form 8-K
announcing the acquisition of Fleming Manufacturing Co., a privately held
Missouri corporation that manufacturers mobile block pants for the
production of mortarless block and pavers.
23
(5) On or about January 26, 2001, the Company filed a Report on Form 8-K
announcing a one-for-six (1:6) reverse stock split of the Company's
Common Stock effective February 5, 2001.
(6) On or about February 9, 2001, the Company filed a Report on Form 8-K
announcing the appointment of Samuel Gejdenson and Meyer A. Berman to the
Company's Board of Directors.
(7) On or about April 16, 2001, the Company filed a Report on Form 8-K
announcing the acquisition of eighty-five percent (85%) of the issued and
outstanding securities of Master Srl ("Master"), an Italian corporation
located in Piacenza, Italy.
(8) On or about May 1, 2001, the Company filed a Report on Form 8- K
announcing the acquisition of eighty-five percent (85%) of the issued and
outstanding securities of Master srl ("Master"), an Italian corporation
located in Piacenza, Italy, subject to completion of due diligence and a
final audit.
(9) On or about May 10, 2001, the Company filed a Report on Form 8-K
announcing the Company's name change to Eagle Building Technologies, Inc.
and the new trading symbol to "EGBT".
(10) On or about May 18, 2001, an Amendment to the January 10, 2001 Form 8-K
was filed providing the audited financials of Fleming Manufacturing
Company, Inc. ("Fleming"), a wholly owned subsidiary of the Company, for
the fiscal year ended December 31, 2000, and the Company's unaudited
consolidated Proforma Financial Statement for the fiscal year ended
December 31, 2000, inclusive of Fleming.
(11) On or about August 2, 2001, the Company filed a Report on Form 8-K
announcing the Company entered into an agreement with Aquila Ventures
Corporation ("Aquila") to form a Joint Venture entity, Aquila Squared
Building Corporation (the "Joint Venture"), to develop large scale social
housing in Mexico.
(12) On or about August 9, 2001, the Company filed a Report on Form 8-K
announcing that the proposed acquisition of eighty-five percent (85%) of
the issued and outstanding securities of Master srl ("Master"), had not
as yet been completed because the final audit of Master's sales revenues
has not been finalized to the satisfaction of the Company.
(13) On or about December 12, 2001, the Company filed a Report on Form 8-K
announcing that the Company had filed a complaint in the Circuit Court
for Palm Beach County, Florida, against an unidentified defendant known
as "Spadeboy" who the Company alleged posted false defamatory, and
libelous information about the Company on the internet website known as
Raging Bull.
(14) On or about January 22, 2002, the Company filed a Report on Form 8-K
announcing the appointment of Dan H. Curlee as Chief Operating Officer
and Ron G. Lakey as Treasurer and Chief Financial Officer.
(15) On or about February 14, 2002, the Company filed a Report on Form 8-K
announcing that the Company had contacted the Securities and Exchange
Commission and has requested that trading in the Company's common stock
be suspended because the Company believes that its financial statements
will have to be restated for at least the past two (2) years.
(16) On or about March 1, 2002, the Company filed a Report on Form 8-K
announcing the following:
24
(a) Eagle Building Technologies, Inc. ("EGBT") has consented to the
entry of a preliminary injunction lawsuit brought against it by the
Securities and Exchange Commission ("SEC") in the U.S. District
Court for the District of Columbia. The Complaint alleges violations
of certain provisions of the Securities Exchange Act of 1934 and
certain rules and regulations thereunder, resulting from the
company's annual and quarterly reports filed for the periods from
December 31, 2000 to September 30, 2001 and certain press releases
issued during the fall of 2001.
(b) On February 14, 2002 the SEC entered an order directing private
investigation and designating officers to take testimony in
connection with the company's foreign operations and certain
post-September 11th security measures marketed by EGBT, including an
airport security system, mail sterilization technology and money
laundering detection software. The company has been cooperating with
the SEC in its investigation.
(c) Effective February 27, 2002, EGBT's President, Chief Executive
Officer, and Chairman of the Board of Directors, Anthony M. Damato,
resigned his officer and board positions. In addition, on February
18, 2002, EGBT's outside auditors, Tanner & Co., withdrew their
report on the December 31, 2000 financial statements and any
assurances rendered associated with the financial statements filed
in 2001 and 2000.
(d) EGBT has recently discovered that its earnings from operations in
India for the years 2000-2001 were intentionally fabricated by Mr.
Damato. Preliminary indications are that no earnings from such
operations existed. In addition, it appears that certain press
releases issued by EGBT in the fall of 2001 regarding post-September
11th security measures marketed by EGBT may have been false and
misleading. "The company is taking appropriate steps to address
these issues and will take whatever future action is necessary based
on the results of a comprehensive investigation," according to EGBT
Board member Meyer Berman.
(e) EGBT has retained the law firm of Fulbright & Jaworski L.L.P., which
has engaged the services of Deloitte & Touche LLP to conduct an
investigation of business practices and financial accounting
controls and identify opportunities for improvement in EGBT's
accounting practices.
(f) EGBT is currently in discussions with potential investors to provide
additional financing for the company.
(17) On or about March 18, 2002, the Company filed a Report on Form 8-K
announcing the following changes to the make-up of its board of
directors: Charles Gargano, Robert Kornahrens and Ralph Thomson have
resigned and Howard Ash and Bruce P. Mauldin have been added to the
board. Mr. Ash is the Chairman of Claridge Management and a former Chief
Financial Officer of Ives Motors Corporation and Chief Operating Officer
of BioCard Corporation. Mr. Mauldin is the President and Chief Executive
Officer of Texas Airways, Inc., a Texas holding company and consulting
group. EGBT also announced that its board of directors has made the
following appointments: board member Meyer Berman has been named Acting
Chairman of the Board, board member and Chief Operating Officer Dan
Curlee has been named to the additional position of President, and board
member and Secretary Don Pollock has been named to the additional
position of Treasurer. In addition, Ron Lakey has resigned as Chief
Financial Officer. Finally, EGBT announced that it is proceeding with the
development of residential housing in Puerto Rico using the IMSI building
system.
25
(18) On or about April 26, 2002, the Company filed a Report on Form 8-K
announcing several class action complaints have recently been filed
against Eagle Building Technologies, Inc. ("Eagle") in federal court
alleging violations of certain provisions of the Securities Exchange Act
of 1934 and certain rules and regulations thereunder. The suits arise
from the company's financial statements filed for the periods December
31, 2000 to September 30, 2001 and certain press releases issued during
the fall of 2001. Eagle has requested an extension of time to respond to
the lawsuit filed against it by the Securities and Exchange Commission
("SEC") based on its settlement discussions with the SEC. Eagle is
continuing to work with its outside auditors, Tanner + Co., to restate
the above- referenced financial statements and to complete Eagle's
financial statement for the period ending December 31, 2001. Eagle
recently named Dr. Martin Shubik to its board of directors. Dr. Shubik
has a Ph.D. in mathematical economics from Princeton University and has
held the Seymour H. Knox Professorship in institutional economics at Yale
University since 1975.
(19) On or about May 30, 2002, the Company filed a Report on Form 8-K
announcing that it has settled the action brought against it by the
Securities and Exchange Commission ("SEC") without admitting or denying
the allegations contained in the SEC's complaint. As part of the
settlement, Eagle has consented to the entry of a final judgment of
permanent injunction against it enjoining it from violating the
anti-fraud, periodic reporting, and recordkeeping provisions of the
federal securities laws.
(20) On or about February 6, 2003, the Company filed a Report on Form
8-K announcing that it has named Securities Transfer Corporation as its
transfer agent.
ITEM 14. CONTROLS AND PROCEDURES
-----------------------
Our Chief Executive Officer and Chief Financial Officer (our principal
executive officer and principal financial officer, respectively) have concluded,
based on their evaluation as of June 30, 2003 ("Evaluation Date"), that the
design and operation of our "disclosure controls and procedures" (as defined in
Rules 13a-14(c) and 15d-14(c) under the Securities Exchange Act of 1934, as
amended (the "Exchange Act") are effective to ensure that information required
to be disclosed by us in the reports filed or submitted and reported to our
management, including our Chief Executive Officer and Chief Financial Officer,
as appropriate to allow timely decisions regarding whether or not disclosure is
required.
There were no significant changes in our internal controls or in other
factors that could significantly affect our internal controls subsequent to the
Evaluation Date, nor were there any significant deficiencies or material
weaknesses in our internal controls. As a result, no corrective actions were
required or undertaken.
26
SIGNATURES
In accordance with the requirements of Section 13 and 15(d) of the
Securities Exchange Act of 1934, the Company has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
EAGLE BUILDING TECHNOLOGIES, INC.
Dated: July 28, 2003 By:/s/ Meyer A. Berman
---------------------------------
Meyer A. Berman, Chairman, CEO,
COO, CFO and Director
In accordance with the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons on behalf of
the Company and in the capacities and on the dates indicated.
Signature Capacity Date
- --------- -------- ----
/s/ Meyer A. Berman Chairman, CEO, COO, July 28, 2003
- ------------------------ CFO and Director
Meyer A. Berman
/s/ Debbie Keogh Director July 28, 2003
- ------------------------
Debbie Keogh
/s/ Alan Jawitz Director July 28, 2003
- ------------------------
Alan Jawitz
/s/ Steven A. Levy Director July 28, 2003
- ------------------------
Steven A. Levy
CERTIFICATIONS
I, Meyer A. Berman, certify that:
1. I have reviewed this annual report on Form 10-K of Eagle Building
Technologies Inc.;
2. Based on my knowledge, this annual report does not contain any
untrue statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by this
annual report;
3. Based on my knowledge, the financial statements, and other
financial information included in this annual report, fairly present in all
material respects the financial condition, results of operations and cash flows
of the registrant as of, and for, the periods presented in this annual report;
4. I am responsible for establishing and maintaining disclosure
controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for
the registrant and have:
27
(a) designed such disclosure controls and procedures to
ensure that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those entities,
particularly during the period in which this annual report is being prepared;
(b) evaluated the effectiveness of the registrant's
disclosure controls and procedures as of a date within 90 days prior to the
filing date of this annual report (the "Evaluation Date"); and
(c) presented in this annual report our conclusions about
the effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date.
5. I have disclosed, based on our most recent evaluation, to the
registrant's auditors and the audit committee of registrant's board of directors
(or persons performing the equivalent function):
(a) all significant deficiencies in the design or operation
of internal controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
(b) any fraud, whether or not material, that involves
management or other employees who have a significant role in the registrant's
internal controls.
6. I have indicated in this annual report whether or not there were
significant changes in internal controls or in other factors that could
significantly affect internal controls subsequent to the date of our most recent
evaluation, including any corrective actions with regard to significant
deficiencies and material weaknesses.
/s/ Meyer A. Berman
- -----------------------------------
Meyer A. Berman
President, Chief Executive Officer,
and Chief Financial Officer
July 28, 2003
28
CERTIFICATION BY CHIEF EXECUTIVE OFFICER AND CHIEF FINANCIAL OFFICER
PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF
THE SARBANES-OXLEY ACT OF 2002
In connection with the Annual Report on Form 10-K of Eagle Building
Technologies, Inc.(the "Company") for the period ended December 31, 2002 as
filed with the Securities and Exchange Commission on the date hereof (the
"Report"), I, Meyer A. Berman, President, Chief Executive Officer, and Chief
Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350,
as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to
the best of my knowledge:
(1) the Report fully complies with the requirements of Section 13(a) or
15(d) of the Securities Exchange Act of 1934; and
(2) the information contained in the Report fairly presents, in all
material respects, the financial condition and results of operations of the
Company.
/s/ Meyer A. Berman
- -----------------------------------
Meyer A. Berman
President, Chief Executive Officer,
and Chief Financial Officer
July 28, 2003
29
EAGLE BUILDING TECHNOLOGIES, INC.
Consolidated Financial Statements
December 31, 2002 and 2001
EAGLE BUILDING TECHNOLOGIES, INC.
Index to Consolidated Financial Statements
- --------------------------------------------------------------------------------
Page
----
Report of Tanner + Co. F-1
Consolidated balance sheet F-2
Consolidated statement of operations F-3
Consolidated statement of stockholders' equity (deficit) F-4
Consolidated statement of cash flows F-5
Notes to consolidated financial statements F-7
INDEPENDENT AUDITORS' REPORT
To The Board of Directors and Stockholders of
Eagle Building Technologies, Inc. and Subsidiaries
We have audited the consolidated balance sheet of Eagle Building Technologies,
Inc. and Subsidiaries (Formerly Eagle Capital International, Ltd.) as of
December 31, 2002 and 2001, and the related consolidated statements of
operations, stockholders' equity (deficit) and cash flows for the years then
ended. These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the consolidated
financial statements. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Eagle
Building Technologies, Inc. and Subsidiaries as of December 31, 2002 and 2001,
and the results of their operations and their cash flows for the years then
ended, in conformity with auditing standards generally accepted in the United
States of America.
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in Note 2 to the
consolidated financial statements, the Company has incurred recurring losses
from operations, have negative working capital, a deficit in net equity and has
significant litigation and other uncertainties, which raise substantial doubt
about its ability to continue as a going concern. Management's plans regarding
those matters also are described in Note 2. The consolidated financial
statements do not include any adjustments that might result from the outcome of
these uncertainties.
Salt Lake City, Utah
July 16, 2003
F-1
EAGLE BUILDING TECHNOLOGIES, INC.
Consolidated Balance Sheet
December 31,
- ------------------------------------------------------------------------------------------------------------
Assets
------
2002 2001
------------------------------------
Current assets:
Cash $ 141,066 $ 174,686
Accounts receivables, net 302,628 758,365
Inventories 1,874,248 1,525,131
Other current assets - 25,152
------------------------------------
Total current assets 2,317,942 2,483,334
------------------------------------
Property and equipment, net 2,592,768 2,946,754
Intangible assets, net 809,581 7,430,350
Investment in unconsolidated subsidiaries 386,820 386,820
Development costs 4,592,157 2,629,139
------------------------------------
$ 10,699,268 $ 15,876,397
------------------------------------
- ------------------------------------------------------------------------------------------------------------
Liabilities and Stockholders' Deficit
-------------------------------------
2002 2001
------------------------------------
Current liabilities:
Notes payable $ 10,473,625 $ 5,334,673
Accounts payable 2,520,449 2,461,942
Accrued liabilities 2,049,020 1,224,969
Accrued settlement costs 3,000,000 3,000,000
Deposits 1,043,585 550,485
Current maturities of long-term debt 103,443 29,335
------------------------------------
Total current liabilities 19,190,122 12,601,404
Long-term debt 6,513,982 6,340,000
Other - 12,849
------------------------------------
Total liabilities 25,704,104 18,954,253
Commitments and contingencies - -
Redeemable common stock - 155,834 shares issued and outstanding 1,168,748 1,168,748
Stockholders' deficit:
Common stock, $.001 par value, 11,666,667 shares authorized;
7,964,212 and 7,015,271 shares outstanding, respectively 7,964 7,015
Additional paid-in capital 37,740,332 31,399,870
Accumulated deficit (53,921,880) (35,653,489)
------------------------------------
Total stockholders' deficit: (16,173,584) (4,246,604)
------------------------------------
$ 10,699,268 $ 15,876,397
------------------------------------
- ------------------------------------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements. F-2
EAGLE BUILDING TECHNOLOGIES, INC.
Consolidated Statement of Operations
Years Ended December 31,
- ------------------------------------------------------------------------------------------------------------
2002 2001
------------------------------------
Sales $ 2,928,164 $ 3,402,915
Cost of sales 2,435,531 2,917,864
------------------------------------
Gross profit 492,633 485,051
Selling, general and administrative expenses 10,653,985 11,251,560
Impairment of investment in unconsolidated
subsidairies - 4,203,801
Settlement costs, claims and litigation 858,476 4,012,427
Impairment of goodwill 2,305,225 1,696,309
Impairment of license rights 4,030,797 -
Impairment of property and equipment - 399,600
------------------------------------
Total operating expenses 17,848,483 21,563,697
------------------------------------
Loss from operations (17,355,850) (21,078,646)
Other income (expense):
Interest expense (912,541) (1,106,142)
Gain on sale of securities - 318,500
Other - 462,272
------------------------------------
Total other income (expenses) (912,541) (325,370)
------------------------------------
Loss before income taxes (18,268,391) (21,404,016)
Provision for income taxes - -
------------------------------------
Net loss $ (18,268,391) $ (21,404,016)
------------------------------------
Weighted average number of common shares
outstanding, basic and diluted 7,641,000 5,963,000
------------------------------------
Loss per common share, basic and diluted $ (2.39) $ (3.59)
------------------------------------
- ------------------------------------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements. F-3
EAGLE BUILDING TECHNOLOGIES, INC.
Consolidated Statement of Stockholders' Equity (Deficit)
Years Ended December 31, 2002 and 2001
- -------------------------------------------------------------------------------------------------------------
Common Stock Additional Total
------------------------ Paid-in Accumulated Stockholders'
Shares Amount Capital Deficit Deficit
-----------------------------------------------------------------------
Balance, January 1, 2001 4,034,243 $ 4,034 $ 17,697,898 $ (14,249,473) $ 3,452,459
Issuance of common stock for:
Cash 1,198,388 1,198 4,230,222 - 4,231,420
Services 792,002 792 5,573,412 - 5,574,204
Payment of debt 672,472 672 2,016,744 - 2,017,416
Payment of interest 106,667 107 660,322 - 660,429
Payment of accrued liabilities 51,499 51 101,433 - 101,484
Purchase of subsidiary 166,667 167 1,169,833 - 1,170,000
Purchase and cancellation of
treasury stock (6,667) (6) (49,994) - (50,000)
Net loss - - - (21,404,016) (21,404,016)
------------------------------------------------------------------------
Balance, December 31, 2001 7,015,271 7,015 31,399,870 (35,653,489) (4,246,604)
Issuance of common stock for:
Cash 110,333 110 986,071 - 986,181
Services 472,608 473 3,876,357 - 3,876,830
Payment of debt and
litigation settlement 325,000 325 812,175 - 812,500
Payment of interest 41,000 41 355,859 - 355,900
Capital contributions from
an officer and shareholder - - 310,000 - 310,000
Net loss - - - (18,268,391) (18,268,391)
------------------------------------------------------------------------
Balance, December 31, 2002 7,964,212 $ 7,964 $ 37,740,332 $ (53,921,880) $ (16,173,584)
------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements. F-4
EAGLE BUILDING TECHNOLOGIES, INC.
Consolidated Statement of Cash Flows
Years Ended December 31,
- ------------------------------------------------------------------------------------------------------------
2002 2001
------------------------------------
Cash flows from operating activities:
Net loss $ (18,268,391) $ (21,404,016)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Impairment of goodwill 2,305,225 1,696,309
Impairment of license rights 4,030,797 -
Impairment of property and equipment - 399,600
Settlement costs, claims and litigation - 4,012,427
Settlement of debt - (230,000)
Depreciation and amortization 1,062,325 569,789
Impairment of investment in unconsolidated subsidiaries - 4,203,801
Stock issued for services 3,876,830 5,574,204
Stock issued for interest 355,900 660,429
Stock issued for settlement costs 462,500 -
Changes in operating assets and liabilities:
Accounts receivable 455,737 (721,427)
Inventories (349,117) (176,613)
Prepaid and other current assets 25,152 221,680
Deferred development costs (1,963,018) -
Accounts payable 58,507 (1,331,942)
Accrued liabilities 824,051 2,630
------------------------------------
Net cash used in operating activities (7,123,502) (6,523,129)
Cash flows from investing activities:
Net cash acquired (used) in acquisition - (653,254)
Investment in and advances to unconsolidated subsidiaries - (2,737,503)
(Investment) reduction in license rights - 10,000
Receivable from officer - 384,645
Purchase of property, plant and equipment (116,422) (278,691)
Deposits 493,100 467,985
------------------------------------
Net cash provided by (used in) investing activities 376,678 (2,806,818)
Cash flows from financing activities:
Proceeds from notes payable 6,815,700 9,531,093
Payments on notes payable (1,398,677) (4,207,441)
Proceeds from issuance and retirement of common stock 986,181 4,181,420
Capital contributions from an officer and shareholder 310,000 -
Cash overdraft - (439)
------------------------------------
Net cash provided by financing activities 6,713,204 9,504,633
------------------------------------
Net (decrease) increase in cash and cash equivalents (33,620) 174,686
Cash and cash equivalents at beginning of year 174,686 -
------------------------------------
Cash and cash equivalents at end of year $ 141,066 $ 174,686
------------------------------------
- ------------------------------------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements. F-5
EAGLE BUILDING TECHNOLOGIES, INC.
Consolidated Statement of Cash Flow
Continued
- --------------------------------------------------------------------------------
Supplemental Disclosure of Cash Flows Information
December 31,
----------------------------------
2002 2001
----------------------------------
Cash paid during the year for
Interest $ - $ 173,029
----------------------------------
Income taxes $ - $ -
----------------------------------
Supplemental Disclosure of Non-Cash Transactions
2002
- ----
o During the year ended December 31, 2002, the Company issued common
stock valued at $350,000 in consideration for the payment of notes
payable and settlement costs.
o During the year ended December 31, 2002, the Company acquired
equipment with debt in the amount of $307,170.
2001
- ----
o During the year ended December 31, 2001, the Company acquired a
75% interest in Salinas Developers Group, Inc. (A Puerto Rico land
development company) in exchange for cash of $312,500 and a note
payable in the amount of $945,000. In connection therewith, the
Company recorded the following:
Prepaid expenses $ 10,600
Capitalized development cost 2,629,139
Goodwill 1,096,234
Short-term notes payable (1,396,257)
Accounts and advances payable (2,019,394)
Accrued expenses (4,568)
Deposits (82,500)
------------------
Net cash used (net of $79,246 cash acquired) $ 233,254
------------------
o During the year ended December 31, 2001, the Company issued common
stock valued as follows in consideration for the following:
Payment of notes payable $ 2,017,416
Payment of accrued liabilities 101,484
Purchase of unconsolidated subsidiary 1,170,000
- --------------------------------------------------------------------------------
F-6
EAGLE BUILDING TECHNOLOGIES, INC.
Notes to Consolidated Financial Statements
December 31, 2002 and 2001
- --------------------------------------------------------------------------------
1. Organization Organization and Principles of Consolidation
and The consolidated financial statements include the
Summary of accounts of Eagle Building Technologies, Inc. (formerly
Significant Eagle Capital International, LTD) (Eagle) and its
Accounting wholly-owned subsidiaries. All significant intercompany
Policies account balances and transactions have been eliminated
in consolidation.
The Company had operations in four principal business
segments during 2002 and 2001: manufacture and sale of
block and wall systems, masonry products manufacturing
systems through its wholly owned subsidiary Fleming
Manufacturing Company, affordable housing sales, and
manufacture and sale of doors.
Principles of Consolidation
The consolidated financial statements include the
accounts of the Company and its 100% owned subsidiaries.
All significant intercompany balances and transactions
have been eliminated in consolidation.
Cash Equivalents
The Company considers all highly liquid temporary
investments with an original maturity of three months or
less to be cash equivalents.
Inventories
Inventories are recorded at the lower of cost or market,
cost being determined on the first-in first-out (FIFO)
method.
Property and Equipment
Property and equipment are recorded at cost, less
accumulated depreciation. Depreciation and amortization
on capital leases and property and equipment is
determined using the straight-line method over the
estimated useful lives of the assets or terms of the
lease. Expenditures of maintenance and repairs are
expensed when incurred and betterments are capitalized.
Gains and losses on sale of property and equipment are
reflected in operations.
Intangible Assets
Intangible assets consist of license rights to certain
production processes and goodwill. License rights are
amortized on the straight-line method over a twenty year
period.
- --------------------------------------------------------------------------------
F-7
EAGLE BUILDING TECHNOLOGIES, INC.
Notes to Consolidated Financial Statements
Continued
- --------------------------------------------------------------------------------
1. Organization Impairment of Long-Lived Assets
and The Company reviews its long-lived assets including
Summary of goodwill, for impairment whenever events or changes in
Significant circumstances indicate that the carrying amount of the
Accounting assets may not be recoverable through undiscounted
Policies future cash flows, such loss is recognized in the
Continued statement of operations.
Revenue Recognition
The Company recognizes revenue from manufacturing and
related activities when evidence exists that an
arrangement exists between the Company and its
customers, delivery of the Company's product has
occurred, the Company's selling price to its customers
is fixed, and collectibility is reasonably assured.
Sales revenues and profits from land sales and
homebuilding activities are recognized at closing only
when sufficient down payments have been obtained,
possession and other attributes of ownership have been
transferred to the buyer, and the Company has no
significant continuing involvement.
The cost of acquiring and developing land and the cost
of homebuilding construction are allocated to these
assets and charged to cost of sales as the related
inventories are sold. Interest costs related to
homebulding and land assets are allocated to these
assets based on their development stage and relative
book value. The portion of interest allocated to land,
building, lots under development, and homebuilding
construction during the development and construction
period is capitalized to the extent of qualifying
assets. Remaining interest costs are expensed. No
interest has been capitalized during 2002 and 2001. The
Company carries land, development and homebuilding costs
at the lower of cost or net realizable value.
Development Costs
Construction costs are capitalized as long as the asset
is under development. Upon completion of construction,
the development costs are included as a component of
real estate inventory. Development costs determined to
be unrecoverable are written off.
Income (Loss) Per Share
The computation of basic loss per common share is based
on the weighted average number of shares outstanding
during each year.
- --------------------------------------------------------------------------------
F-8
EAGLE BUILDING TECHNOLOGIES, INC.
Notes to Consolidated Financial Statements
Continued
- --------------------------------------------------------------------------------
1. Organization Income (Loss) Per Share - Continued
and The computation of diluted earnings per common share is
Summary of based on the weighted average number of shares
Significant outstanding during the year, plus the common stock
Accounting equivalents that would arise from the exercise of stock
Policies options and warrants outstanding, using the treasury
Continued stock method and the average market price per share
during the year. Options to purchase 208,333 shares of
common stock at prices ranging from $12.00 to $18.00,
per share were outstanding at December 31, 2002 and
2001, but were not included in the diluted earnings
(loss) per share calculation because the effect would
have been antidilutive.
Income Taxes
Income taxes are recorded using the asset and liability
method. Deferred tax assets and liabilities are
recognized for the future tax consequences attributable
to differences between the financial statement carrying
amounts of existing assets and liabilities and their
respective tax bases and operating loss and tax credit
carryforwards. Deferred tax assets and liabilities are
measured using enacted tax rates expected to apply to
taxable income in the years in which those temporary
differences are expected to be recovered or settled. The
effect on deferred tax assets and liabilities of a
change in tax rates is recognized in income in the
period that includes the enactment date
Stock-Based Compensation
The Company accounts for stock-based compensation under
the recognition and measurement principles of APB
Opinion No. 25, Accounting for Stock Issued to
Employees, and related Interpretations. No stock-based
employee compensation cost is reflected in net income
(loss), as all options vested had an exercise price
equal to the market value of the underlying common stock
on the date of grant or the date of repricing. No
options were issued or vested during the years ended
December 31, 2002 and 2001, therefore, there would be no
effect on net income and earnings per share if the
company had applied the fair value recognition
provisions of FASB Statement No. 123, Accounting for
Stock-Based Compensation, to stock-based employee
compensation.
Concentration of Credit Risk
Financial instruments which potentially subject the
Company to concentration of credit risk consist
primarily of receivables. In the normal course of
business, the Company provides credit terms to its
customers. Accordingly, the Company performs ongoing
credit evaluations of its customers and maintains
allowances for possible losses which, when realized,
have been within the range of management's expectations.
The Company maintains its cash in bank deposit accounts
which, at times, may exceed federally insured limits.
The Company has not experienced any losses in such
accounts and believes it is not exposed to any
significant credit risk on cash and cash equivalents.
- --------------------------------------------------------------------------------
F-9
EAGLE BUILDING TECHNOLOGIES, INC.
Notes to Consolidated Financial Statements
Continued
- --------------------------------------------------------------------------------
1. Organization Use of Estimates in the Preparation of Financial
and Statements
Summary of The preparation of financial statements in conformity
Significant with generally accepted accounting principles requires
Accounting management to make estimates and assumptions that affect
Policies the reported amounts of assets and liabilities and
Continued disclosure of contingent assets and liabilities at the
date of the financial statements and the reported
amounts of revenues and expenses during the reporting
period. Actual results could differ from those
estimates.
Reclassifications
Certain reclassifications have been made to the prior
year's financial statements in order to conform them to
the classifications used for the current year.
2. Going The financial statements have been prepared assuming
Concern that the Company will continue as a going concern. As of
December 31, 2002 the Company had a deficit in working
capital, and had incurred significant losses from
operations since its inception. As further described in
Note 15 the Company has been named in a number of
significant lawsuits and other disputes which could
result in significant additional claims against the
Company's limited assets and limit its ability to offer
the products and services currently offered by the
Company. Management is currently attempting to resolve
the litigation and other disputes and to seek additional
equity financing. Since a significant portion of the
Company's losses have been a result of businesses which
have been abandoned or discontinued and the result of
actions of the Company's former President and Chairman
of the Board of Directors, management is hopeful that
its equipment manufacturing and real estate development
operations will generate sufficient profits in order to
allow the Company to become profitable. However, there
are no assurances these operations will result in profit
for the Company or that the Company will be successful
in resolving its litigation in a manner which does not
have an adverse impact on the financial position of the
Company.
- --------------------------------------------------------------------------------
F-10
EAGLE BUILDING TECHNOLOGIES, INC.
Notes to Consolidated Financial Statements
Continued
- --------------------------------------------------------------------------------
3. Detail of
Certain
Balance
Sheet
Accounts December 31,
-----------------------------------
2002 2001
-----------------------------------
Receivables:
Trade receivables $ 822,150 $ 858,365
Less allowance for
doubtful accounts (519,522) (100,000)
-----------------------------------
$ 302,628 $ 758,365
-----------------------------------
Inventories:
Finished goods/purchased
parts $ 37,446 $ 644,549
Work-in-process 958,668 139,361
Raw material 878,134 741,221
-----------------------------------
$ 1,874,248 $ 1,525,131
-----------------------------------
4. Property and Property and equipment consist of the following:
Equipment
December 31,
-----------------------------------
2002 2001
-----------------------------------
Equipment $ 4,710,418 $ 4,317,646
Furniture and fixtures 171,232 165,489
Leasehold improvements 124,507 124,507
Transportation equipment 61,146 61,069
-----------------------------------
5,067,303 4,668,711
Less accumulated depreciation
and amortization (2,474,535) (1,721,957)
-----------------------------------
$ 2,592,768 $ 2,946,754
-----------------------------------
- --------------------------------------------------------------------------------
F-11
EAGLE BUILDING TECHNOLOGIES, INC.
Notes to Consolidated Financial Statements
Continued
- --------------------------------------------------------------------------------
4. Property and During the year ended December 31, 2001 the Company
Equipment recorded impairment of equipment in the amount of
Continued $399,600. The equipment was purchased in connection with
the acquisition of CT India. These acquisitions were
made to use in the production process in India. During
2001, the Company was unable to successfully begin
operations in India and has been unable to provide the
resources necessary to make India successful. As a
result, the Company determined the equipment to be
impaired and recorded the impairment loss.
5. Acquisitions Business Dimensions, Inc. and Master SRL
In August 2000, the Company acquired all of the assets
of Business Dimensions, Inc., whose major asset is the
license to sell and distribute to the North American
market security doors manufactured by Master SRL
(Master) (an Italian door manufacturer). The Company
paid no consideration in the acquisition, but was
required to make certain payments in the future based on
specific events. During the year ended December 31,
2001, the Company issued 166,667 shares valued at
$1,170,000 as consideration. This amount has been
included as part of the total consideration paid for
Master, (see below). The results of operations of
Business Dimensions, Inc. were not significant for the
year ended December 31, 2000, 2001 and 2002.
During October 2001, the Company entered into agreements
to purchase 100% of the outstanding shares of Master for
approximately $8,931,000 cash from the individual
shareholders of Master. As of December 31, 2001,
$6,280,780 was due under these agreements to complete
the acquisition. Since the Company determined it did not
have the resources to complete the purchase agreements
it has decided to forfeit its deposit for purchase of
shares not fully paid for and attempt to facilitate
purchase of the balance of the shares by another party
which could require the Company to reduce its current
ownership of Master.
- --------------------------------------------------------------------------------
F-12
EAGLE BUILDING TECHNOLOGIES, INC.
Notes to Consolidated Financial Statements
Continued
- --------------------------------------------------------------------------------
5. Acquisitions Business Dimensions, Inc. and Master SRL - Continued
Continued During the year ended December 31, 2001, the Company
wrote down its net investment in Master to 21% of the
recorded book value of Master or $386,820. This write
down of $3,581,183 during the year ended December 31,
2001 is included in the accompanying statement of
operations under the caption "Impairment of investment
in unconsolidated subsidiaries". As the Company does not
control Master and anticipates its investment will
decrease to less than 20%, the investment has been
accounted for using the cost basis of accounting until
future events dictate a change in the Company's current
plans.
During the year ended December 31, 2001, the Company
incurred the following costs in connection with its
evaluation and eventual purchase of 21% of Master.
Purchase of 21% of Master $ 1,677,845
Non-refundable deposit towards the
purchase of the remaining 79% of
Master 971,942
Issuance of 166,667 shares for
North American license rights
(see above under Business
Dimensions, Inc.) 1,170,000
Other costs including travel,
consultation and accounting fees 148,216
---------------
Total paid 3,968,003
Impairment (3,581,183)
---------------
Net investment as of December 31,
2002 and 2001 $ 386,820
---------------
- --------------------------------------------------------------------------------
F-13
EAGLE BUILDING TECHNOLOGIES, INC.
Notes to Consolidated Financial Statements
Continued
- --------------------------------------------------------------------------------
5. Acquisitions Salinas Developers Group, Inc.
Continued ------------------------------
During October 2001, the Company acquired 75% of the
common stock of Salinas Developers Group, Inc. (Salinas)
(a Puerto Rico land development company) in exchange for
cash of $312,500 and a note payable in the amount of
$945,000. In connection therewith, the Company recorded
the following:
Prepaid expenses $ 10,600
Capitalized development cost 2,629,139
Goodwill 1,096,234
Short-term notes payable (1,396,257)
Accounts and advances payable (2,019,394)
Accrued expenses (4,568)
Deposits (82,500)
---------------
Net cash used (net of cash
acquired of $79,246) $ 233,254
---------------
6. Intangible Intangible assets consist of the following:
Assets
December 31,
------------------------
2002 2001
------------------------
Goodwill $ - $ 2,368,856
License rights 809,581 5,695,000
Accumulated amortization - (633,506)
------------------------
$ 809,581 $ 7,430,350
------------------------
Amortization expense was $284,747 and $462,535 for the
years ended December 31, 2002 and 2001, respectively.
On January 1, 2002, the Company adopted SFAS No. 142,
"Goodwill and Other Intangible Assets". SFAS No. 142
changes the accounting for goodwill and intangible
assets with indefinite lives from an amortization method
to an impairment approach.
- --------------------------------------------------------------------------------
F-14
EAGLE BUILDING TECHNOLOGIES, INC.
Notes to Consolidated Financial Statements
Continued
- --------------------------------------------------------------------------------
6. Intangible As of December 31, 2002, the Company determined that the
Assets remaining goodwill (from previous acquisitions of
Continued Fleming Manufacturing Company and Salinas) was impaired
and recorded an impairment loss in the accompanying
statement of operations of $2,305,225.
As of December 31, 2002, the Company determined that the
license rights were impaired and recorded an impairment
loss in the accompanying statement of operations of
$4,030,797 ($4,885,419 less accumulated amortization of
$854,622).
During the year ended December 31, 2001 the Company
recorded additional goodwill due to its purchase of
Salinas in the amount of $1,096,234 and also recorded an
impairment loss due to the write-off of goodwill
purchased in connection with the acquisition of Great
Wall New Building Systems in the amount of $1,696,309
($1,884,787 less accumulated amortization of $188,478).
This acquisition was made to obtain license rights to
the Company's production process in The People's
Republic of China. In 2000, these rights allowed the
Company to enter into a joint venture in The People's
Republic of China which were also written off in 2001 as
an impairment loss in the amount of $622,618 and is
included in the accompanying 2001 statement of
operations under the caption, "Impairment of Investment
in Unconsolidated Subsidiaries" (see Note 7). During
2001, the Company, through the joint venture, was unable
to successfully begin operations, and has been unable to
provide the resources necessary to make Great Wall New
Building Systems and the joint venture successful. As a
result, the Company determined the goodwill at December
31, 2001 in Great Wall New Building Systems and the
corresponding joint venture is impaired and has recorded
impairment losses in the amount of $1,696,309 for
goodwill and $622,618 for its investments in the joint
venture.
7. Joint Venture During the year ended December 31, 2000, the Company
entered into a joint venture in the People's Republic of
China for the primary purpose of producing and selling
cement building blocks, bonding cement, polystyrene foam
insulation, and related technical services. The Company
has a fifty-five percent interest in the joint venture,
however, due to the nature of the business environment
in China, the Company is not considered for accounting
purposes to exert significant control and the joint
venture has been accounted for under the equity method.
- --------------------------------------------------------------------------------
F-15
EAGLE BUILDING TECHNOLOGIES, INC.
Notes to Consolidated Financial Statements
Continued
- --------------------------------------------------------------------------------
7. Joint Venture During the years ended December 31, 2002 and 2001, the
Continued joint venture was not successful in beginning
significant operations, or in generating significant
revenues. Additionally, the Company has been unable to
devote the needed resources to the joint venture. As a
result, the Company determined its investment in the
joint venture to be impaired and has recorded an
impairment in the amount of $622,618 during the year
ended December 31, 2001.
8. Notes Payable Notes payable consist of the following at December 31:
2002 2001
---------------------------------
Notes payable to the Company's chairman
of the board of directors, due on
demand with no stated interest $ 5,028,354 $ -
Note payable to an individual, due
December 31, 2001, with interest at
6.20% secured by property and equipment
(related to purchase of Fleming).
The note is currently in default 2,125,000 2,125,000
Advance payable to individuals and
or entities, due on demand with no
stated interest rate 903,000 -
Notes payable to individuals and or
entities, due September 1, 2003, with
interest at 8.5%, secured by assets 642,000 -
Note payable to an entity, due on
demand with interest at 8% secured by
real property. 453,601 451,255
Note payable to the Company's chairman
of the board of directors, due October
2001 with interest at 10% 380,000 380,000
- --------------------------------------------------------------------------------
F-16
EAGLE BUILDING TECHNOLOGIES, INC.
Notes to Consolidated Financial Statements
Continued
- --------------------------------------------------------------------------------
8. Notes Payable
Continued
Bank line of credit agreement which
allows the Company to borrow a maximum
amount of $350,000 at an interest rate
equal to the bank's prime rate plus
1.5% (5.75% at December 31, 2002). The
line of credit is secured by accounts
receivable, inventory, furniture,
fixtures and equipment 346,329 350,000
Notes payable to relatives of the
Company's chairman of the board of
directors, due September 1, 2003, with
interest at 8.5%, secured by assets 240,000 -
Convertible note payable to an
individual, due September 2001 with
interest at 10%, secured by property
and equipment. The note is currently
in default. 200,000 200,000
Obligation payable to an individual,
due on demand with no stated interest
rate, secured by equipment 100,000 230,000
Note payable to an individual in
monthly installments including interest
at 6.2%, secured by property and
equipment (related to the purchase of
Fleming) 35,341 283,418
Advance payable to a previous employee
and shareholder, due on demand with no
stated interest rate 20,000 20,000
Note payable to an individual for purchase
of Salinas due on demand with no stated
interest rate - 945,000
- --------------------------------------------------------------------------------
F-17
EAGLE BUILDING TECHNOLOGIES, INC.
Notes to Consolidated Financial Statements
Continued
- --------------------------------------------------------------------------------
8. Notes Payable
Continued
Convertible note payable to an entity,
due August 2001 with interest at 4%,
unsecured - 350,000
---------------------------------
Total notes payable $ 10,473,625 $ 5,334,673
---------------------------------
9. Long-Term Long-term debt consists of the following at December 31:
Debt
2002 2001
---------------------------------
Notes payable convertible into common
stock at $10 per share, to the
Company's chairman, due July 2, 2004,
with interest at 10%, secured by
Company stock $ 3,340,000 $ 3,340,000
Notes payable convertible into common
stock at $10 per share, to
organizations and individuals,
including $250,000 due to related
parties or entities, due July 2,
2004, with interest at 10%,
secured by Company stock 2,000,000 2,000,000
Convertible note payable to the
Company's chairman, due October 2004
with interest at 10%, unsecured 1,000,000 1,000,000
Capital lease obligation 277,425 29,335
---------------------------------
6,617,425 6,369,335
Less current portion (103,443) (29,335)
---------------------------------
Long-term debt $ 6,513,982 $ 6,340,000
---------------------------------
Future maturities of notes payable and long-term debt
are as follows:
Year Ended December 31, Amount
----------------------- ------------------
2003 $ 10,577,068
2004 6,446,609
2005 67,373
------------------
$ 17,091,050
------------------
- --------------------------------------------------------------------------------
F-18
EAGLE BUILDING TECHNOLOGIES, INC.
Notes to Consolidated Financial Statements
Continued
- --------------------------------------------------------------------------------
10. Capital The Company leases certain equipment under
Leases noncancellable capital leases. Assets held under capital
leases were included in equipment as follows:
December
----------------------------------
2002 2001
----------------------------------
Equipment $ 307,170 $ -
Accumulated amortization (20,479) -
----------------------------------
$ 286,691 $ -
----------------------------------
Amortization expense on capital leases for the years
ended December 31, 2002 and 2001 were $20,479 and $0,
respectively.
Future payments under the capital leases are as follows:
Year
----
2003 $ 118,980
2004 118,980
2005 69,405
------------------
Total payments 307,365
Less: amount of interest (29,940)
------------------
Net capital lease principal 277,425
Less: current maturities (103,443)
------------------
Total long-term $ 173,982
------------------
11. Accrued During February 2002, the Company became aware that its
Settlement Chairman of the Board of Directors and former President
Costs had prepared fraudulent documents to misrepresent the
revenues, costs and cash associated with operations
conducted by a subsidiary in India and concerning
certain loans and stock transactions. This resulted in
the Company's financial statements being restated as of
December 31, 2000.
- --------------------------------------------------------------------------------
F-19
EAGLE BUILDING TECHNOLOGIES, INC.
Notes to Consolidated Financial Statements
Continued
- --------------------------------------------------------------------------------
11. Accrued As a result, the Company recorded settlement costs
Settlement claims and litigation related primarily to the accrual
Costs for estimated amounts the Company may owe and the write-
Continued down of assets as the result of anticipated future
settlements.
12. Income Taxes The provision for income taxes differs from the amounts
which would be provided by applying the statutory
federal income tax rate to net loss before provision for
income taxes for the following reasons:
Year Ended
December 31,
---------------------------------
2002 2001
---------------------------------
Federal income tax benefit
at statutory rate $ 6,851,000 $ 8,027,000
Stock issued for settlement
costs (132,000) -
Valuation allowance (6,719,000) (8,027,000)
---------------------------------
$ - $ -
---------------------------------
Deferred tax assets (liabilities) are comprised of the
following at December 31:
2002 2001
---------------------------------
Net operating loss carry
forward $ 11,389,000 $ 6,810,000
Depreciation and
amortization (478,000) (84,000)
Goodwill impairment 2,101,000 1,236,000
Investment impairment 1,896,000 1,896,000
License rights impairment 1,512,000 -
Property and equipment
Impairment 150,000 150,000
Allowance for doubtful
accounts 195,000 38,000
---------------------------------
16,765,000 10,046,000
Less valuation allowance (16,765,000) (10,046,000)
---------------------------------
$ - $ -
---------------------------------
A valuation allowance has been recorded for the full
amount of the deferred tax asset because it is more
likely than not that the deferred tax asset will not be
realized.
- --------------------------------------------------------------------------------
F-20
EAGLE BUILDING TECHNOLOGIES, INC.
Notes to Consolidated Financial Statements
Continued
- --------------------------------------------------------------------------------
12. Income Taxes At December 31, 2002, the Company has approximately
Continued $30,370,000 of net operating loss carryforwards to
offset future taxable income. These carryforwards begin
to expire in 2019.
13. Stock Options
and Stock-
Based
Compensation Exercise
Amount Price
---------------------------------
Outstanding at January 1, 2001 208,333 $ 12.00 - 18.00
Granted - -
Exercised - -
Expired - -
---------------------------------
Outstanding at December 31, 2001 208,333 $ 12.00 - 18.00
Granted - -
Exercised - -
Expired - -
---------------------------------
Outstanding at December 31, 2002 208,333 $ 12.00 - 18.00
---------------------------------
The Company has adopted the disclosure-only provisions
of Statement of Financial Accounting Standards (SFAS)
No. 123 Accounting for Stock-Based Compensation.
Accordingly, no compensation cost has been recognized in
the financial statements for stock options granted to
employees. Had compensation cost for the Company's stock
option plans been determined based on the fair value at
the grant date consistent with the provisions of SFAS
No. 123, the Company's net loss and loss per share would
have been as indicated below:
Year Ended
December 31,
---------------------------------
2002 2001
---------------------------------
Net loss - as reported $ (18,268,391) $ (21,404,016)
Net loss - pro forma $ (18,268,391) $ (21,404,016)
Loss per share - as reported $ (2.39) $ (3.59)
Less per share - pro forma $ (2.39) $ (3.59)
- --------------------------------------------------------------------------------
F-21
EAGLE BUILDING TECHNOLOGIES, INC.
Notes to Consolidated Financial Statements
Continued
- --------------------------------------------------------------------------------
13. Stock Options The fair value of each option granted was estimated
and Stock- on the date of grant using the Black-Scholes option
Based pricing model with the following assumptions:
Compensation
Continued
Expected Dividend yield $ -
Expected stock price volatility 61%
Risk-free interest rate 6.0%
Expected life of options 3-5 years
The following table summarizes information about stock
options outstanding at December 31, 2002:
Options and Warrants Options and Warrants
Outstanding Exercisable
----------------------------------------------------------------
Weighted
Average
Remaining Weighted Weighted
Range of Contractual Average Average
Exercise Number Life Exercise Number Exercise
Prices Outstanding (Years) Price Exercisable Price
-------------------------------------------------------------------------------
$ 12.00 141,667 0.19 $ 12.00 141,667 $ 12.00
18.00 66,666 2.82 18.00 66,666 18.00
-------------------------------------------------------------------------------
$ 12.00-18.00 208,333 1.03 $ 13.92 208,333 $ 13.92
-------------------------------------------------------------------------------
14. Redeemable In connection with the issuance of debt the Company
Common issued 155,834 shares of common stock. The debt
Stock agreement allows the holder of the shares to require the
Company to repurchase those shares for $7.50 per share.
Consequently, the Company recorded a liability for these
shares equal to the estimated fair value of $1,168,748.
At December 31, 2002 and 2001, the option price of the
shares were more than the market price of the Company's
stock.
- --------------------------------------------------------------------------------
F-22
EAGLE BUILDING TECHNOLOGIES, INC.
Notes to Consolidated Financial Statements
Continued
- --------------------------------------------------------------------------------
15. Commitments Royalty Agreements
and During the year ended December 31, 2000 the Company
Contingencies settled litigation with an entity concerning certain
license rights. Under the terms of the settlement the
entity agreed to ratify licenses previously granted to
the Company for China, India and Mexico for a one time
license fee of $25,000 each. In addition, the entity
agreed to issue the Company a license for Southern
Europe for a license fee of $50,000, and to recognize a
previous license for Romania granted to a Company
investee. The settlement agreement requires the Company
to pay a royalty of 4.5% of gross revenues from licensed
products. During 2001, the Company entered into a
license agreement for Puerto Rico. Approximate minimum
royalties are as follows:
Year Ending December 31, Amount
------------------------ ---------------
2003 $ 532,000
2004 $ 570,000
2005 $ 570,000
2006 $ 570,000
During 2002 and 2001 the Company paid $164,500 and
$451,410, respectively under these agreements. The
Company has also asserted a claim for a credit or refund
of approximately $290,124 for overpayment of royalties
in 2001. The Company has also established a valuation
allowance for this claim due to an uncertainty
concerning the ultimate realization of those amounts. As
described in Note 16, there is litigation concerning the
Company's rights under these agreements.
Other Claims
A former officer of the Company confirmed a claim
against the Company for approximately $615,000 as of
December 31, 2002 for reimbursable expenses,
compensation pursuant to an acquisition agreement and
also failure to timely remove the restrictive legend on
shares of the Company's common stock held by him. The
Company has not recorded any of these claims as
management disputes the claims and believes they are
without merit.
- --------------------------------------------------------------------------------
F-23
EAGLE BUILDING TECHNOLOGIES, INC.
Notes to Consolidated Financial Statements
Continued
- --------------------------------------------------------------------------------
15. Commitments Other Claims - Continued
and On approximately April 25, 2001, the Company purchased
Contingencies equipment from an individual, and through December 31,
Continued 2002, the Company has paid its obligations to the
individual except for $100,000 of outstanding principal,
which is recorded in the accompanying financial
statements as a note payable. The individual has
confirmed a claim against the Company for additional
compensation for non-payment since the date of purchase,
accrued interest since the date of purchase and $.10 per
unit of inventory that the Company has produced using
this equipment since the date of purchase and through
December 31, 2002. The Company has not recorded any of
the additional compensation in the accompanying
financial statements as management disputes the claims.
A possible assessment exists for the Company's alleged
failure to conduct an archaeological study of the site
where a residential project is being developed by the
Company in Puerto Rico.
A potential claim exists from the federal and state
taxing authorities for the Company's alleged failure to
withhold and deduct the FICA tax and Puerto Rico income
taxes on compensation paid to employees, officers and/or
directors of the Company.
The Company is also subject from time to time to
lawsuits and other claims arising in the ordinary course
of business. In the opinion of the Company's management,
these matters are adequately covered by insurance or, if
not so covered, are without merit or are of such nature
or involve amounts that would not have a material
adverse effect on the Company's financial condition,
results of operations or cash flows if decided
adversely.
16. Litigation Securities and Exchange Commission
SEC v. Eagle Building Technologies, Inc. and Anthony
D'Amato (Civil Action No. 1:02CV397ESH D.D.C.) The SEC
and the Company agreed to settle the lawsuit in May
2002. The Court signed the settlement papers on or about
May 30, 2002, entering a permanent injunction against
the Company for any future violations of Sections 10
(b), 13 (a), 13 (b) (2) (A), and 13 (b) (2) (B) of the
Securities Exchange Act of 1934, and Rules 10b-5,
12b-20, 13a-1, 13a-13, and 13b2-1. The Company made no
admission or denial of liability in connection with the
settlement.
- --------------------------------------------------------------------------------
F-24
EAGLE BUILDING TECHNOLOGIES, INC.
Notes to Consolidated Financial Statements
Continued
- --------------------------------------------------------------------------------
16. Litigation Securities and Exchange Commission - Continued
Continued In March 2003, Anthony D'Amato was ordered to forfeit
$56,623 in trading profits plus prejudgment interest of
$5,637, and agreed to cancel 367,742 shares of Eagle
Building stock, including 286,500 shares of stock he
received as compensation for acting as an officer and
director of the Company and an additional 81,242 shares
to satisfy the requirement that he repay his trading
profits and prejudgment interest that had been given as
part of his compensation.
In October 2002, D'Amato consented to entry of a
permanent injunction that prohibits him from making
false statements in press releases and reports made to
the SEC, creating false business records, and providing
false information to the Company's auditors in violation
of the anti-fraud, periodic reporting and internal
record-keeping provisions of Sections 10(b) and 13(b)(5)
of the Securities Exchange Act of 1934 and Rules 10b-5,
12b-20, 13b2-1, and 13b2-2. D'Amato is also barred from
serving as an officer or director of any publicly traded
company.
Mr. D'Amato pleaded guilty in a criminal case to one
count of securities fraud in the Southern District of
Florida before United States District Judge Jose E.
Martinez, and is scheduled to be sentenced criminally
for his conduct in relation to the Company in July.
Pursuant to the Victims Recovery Act, the Company
intends to file a claim for restitution.
Class Actions
As previously reported, the Company has been named as a
defendant in various class action suits alleging
securities violations by Eagle pursuant generally to
Section 10(b) and 20(a) of the Exchange Act and Sec Rule
10b-5 promulgated thereunder. The complaints generally
allege that Eagle intentionally perpetrated a fraud upon
the public by the dissemination of false and misleading
information.
By order dated July 31, 2002, the United States District
Court for the Southern District of Florida consolidated
all of the class action cases, appointed certain parties
as lead plaintiffs and the attorneys for the plaintiffs
as lead co-counsel for the class. The new case is styled
In Re Eagle Building Technologies, Inc., Securities
Litigation, Case Number 02-80294-CIV-RYSKAMP.
- --------------------------------------------------------------------------------
F-25
EAGLE BUILDING TECHNOLOGIES, INC.
Notes to Consolidated Financial Statements
Continued
- --------------------------------------------------------------------------------
16. Litigation Class Actions - Continued
Continued Kelso Capital et al. v. Eagle Building Technologies,
Inc., Anthony D'Amato, Paul-Emile Desrosiers and Tanner
+ Co. (Southern District of Nevada, Civil Case No.
CV-S-02-0367-PMP-PAL, filed March 15, 2002).
Alan Davidson and Victor Kashner v. Eagle Building
Technologies, Inc. (United States District Court,
Southern District of Florida, Case No.
02-80323-CIV-RYSKAMP, filed March 26, 2002)
Marc Newman, Kenneth Wait, Dr. Anthony Roberts and Dana
Davis, et al. v. Eagle Building Technologies, Inc.,
Anthony D'Amato, Dr. Ralph Thomson, Andros Savvides,
Wilfred G. Mango, Jr., Donald Pollock, Robert
Kornahrens, Charles A. Gargano, Samuel Gejedson, Meyer
A. Berman and Tanner + Co. (United States District
Court, Southern, District of Florida, Case No.
02-80294-CIV-RYSKAMP, filed April 5, 2002)
Inglewood Holdings, Ltd. V. Eagle Building Technologies,
Inc., and Anthony D'Amato (United States District Court,
Southern District of Florida, Case No.
02-80340-CIV-MIDDLEBROOKS, filed April 16, 2002)
David D. Pain v. Eagle Building Technologies, Inc. and
Anthony D'Amato (United States District Court, Southern
District of Florida, Case No. 02-80372-CIV-HURLEY, filed
April 24, 2002)
Jeff Gass v. Eagle Building Technologies, Inc., Anthony
D'Amato, Paul-Emile Desrosiers and Tanner + Co. (United
States District Court, District of Nevada, Case No.
CV-S-02-0640-PMP-RJJ, filed May 6, 2002)
Robert Gluck v. Eagle Building Technologies, Inc. et al.
(United States District Court, Southern District of
Florida, Case No. 02-CV- 80302, filed April 8, 2002
Guerrilla IRA Partners, L.P. v. Eagle Building
Technologies, Inc. and Anthony D'Amato (United States
District Court, Southern District of Florida, Case No.
02-CV-80403, filed May 3, 2002)
- --------------------------------------------------------------------------------
F-26
EAGLE BUILDING TECHNOLOGIES, INC.
Notes to Consolidated Financial Statements
Continued
- --------------------------------------------------------------------------------
16. Litigation Additional Securities Litigation
Continued Mark Neuman v. Anthony D'Amato, et al. and Eagle
Building Technologies, Inc. (as a nominal defendant)
(15th Judicial Circuit in and for Palm Beach County,
Florida, Case No. CA 02-05560-AG). This complaint was
filed on May 9, 2002, as a shareholders derivative
action alleging breach of fiduciary duty,
misappropriation of confidential information, and
contribution and indemnification. The Plaintiff is
seeking damages in excess of $15,000. The Company filed
a motion to dismiss the complaint on July 3, 2002. The
Court has not yet issued a ruling on the motion. No
discovery has occurred and no trial date has been set.
We are unable to express an opinion regarding the
outcome of this litigation or as to any potential loss
or range of loss to the Company in the event that either
a favorable or unfavorable outcome results. Co-Defendant
Robert Kornahrens recently filed a cross-claim for legal
fees against the Company.
Anthony I. Bentley, James Bruce Whiting and Beverly D.
Whiting v. Eagle Building Technologies, Inc. (Third
Judicial District Court, Salt Lake City, Utah, Case No.
CA 02-0901808). The complaint alleges breach of
contract, unjust enrichment and conversion for failure
to issue securities to the Plaintiffs.
Trust #191190MAN(A) v. Eagle Building Technologies, Inc.
et al. (US District Court, District of Utah, Central
Division, Case No. 02-CV-202CV-0502ST). This is an
action brought by a Trust whose agent is Clealon B.
Mann. The Trust's sole cause of action is brought under
RICO and alleges that Eagle failed to remove the Rule
144 legend from 8,333 shares of Eagle stock, claimed the
shares were attached pursuant to a pending lawsuit, and
titling shares in the name of Clealon Mann. Plaintiff's
claimed damages are the amount of the Eagle shares at
the time it would have sold them. However, Plaintiff
does not indicate when such a sale would have occurred.
As with the McConkie lawsuit, General Securities
Transfer Agency (GSTA) and Iverna Morgan, GSTA's
president, were named as defendants and Eagle has agreed
to indemnify them. The Company is defending this action
based upon the following grounds: (a) the shares were
titled in the name of the trust, and listed Mann only as
trustee; (b) the shares were issued without restriction
in August 2000; and (c) at least two writs of execution
were issued in 2001, both of which specifically attached
the Trust's shares and prevented the sale of said
shares. The Company has filed an answer to the Complaint
denying all allegations.
- --------------------------------------------------------------------------------
F-27
EAGLE BUILDING TECHNOLOGIES, INC.
Notes to Consolidated Financial Statements
Continued
- --------------------------------------------------------------------------------
16. Litigation Additional Securities Litigation - Continued
Continued F. Briton McConkie and Stephen R. Fey v. Eagle Capital
International, and General Securities Transfer Agency,
Inc. (United States District Court for the Central
Division of Utah, Civil Case No. 2:01-CV0-0950 ST). This
is an action brought by Brinton McConkie and Stephen Fey
on the grounds of breach of contract. The plaintiffs
allege that Eagle wrongfully refused to transfer 200,000
shares, represented by certificates number 432114 and
432119. Plaintiffs have produced affidavits of Doug Dent
and Ralph Thompson, former members of the Eagle Board of
Directors, in which both men state that the shares were
properly issued. The potential damages in this matter
would likely be the value of the shares in April 2001,
when Plaintiffs initially requested the shares
transferred. The Company's asserted defense is that the
shares in question were never properly issued and there
was a lack or failure of consideration. Discovery has
just begun. Additionally, GSTA, the agency handling
Eagle's stock certificates, was named as a defendant.
Eagle has agreed to indemnify GSTA in this matter.
Deborah Donoghue v. Eagle Building Technologies,Inc.,
U.S. District Court for the Southern District of New
York Case 03CV2472. This stockholders derivative suit
seeks to recover alleged "short swing" profits realized
by certain beneficial owners of the Company's common
stock in violation of Section 16(b) of the Securities
Exchange Act of 1934. The Company's position is that the
claims are satisfied because the proceeds of such sales
in excess of any imputable profits were given over to
the Company and/or that in any case many of the
transactions identified in the claims are exempt
transactions. A pre-trial conference has been scheduled
in the case.
Other Litigation
Polysolutions Corp. and Bullhide Liner of Broward
County, Inc. v. Eagle Capital International, Inc. (14th
Judicial Circuit Court in and for Palm Beach County,
Florida, Civil Case No. CA-01-9017AB). The complaint was
filed on September 4, 2001. On or about April 23, 2002,
Plaintiffs sought to amend the complaint to name Anthony
D'Amato, Ralph Thomson, Richard Lahey, Andros Savvides,
Wilfred Mango, Donald Pollock, Robert Kornahrens,
Charles Gargano, Samuel Gejdenson, Meyer Berman, Howard
Ash, and Bruce Mauldin as individual defendants. The
Amended Complaint alleges counts for breaches of
contract, fraud in the inducement and breach of
fiduciary duty. The Company is presently substituting
the law firm of Adorno and Yoss, located in Miami, West
Palm Beach, Boca Raton and Fort Lauderdale, and Naples
Florida, as counsel in this matter. A cross claim was
recently filed by former Director Kornahrens in this
matter, complaining that the Company was failing to
honor its obligations to defend him. The Company
believes that this cross claim will be withdrawn in
light of the substitution of new counsel.
- --------------------------------------------------------------------------------
F-28
EAGLE BUILDING TECHNOLOGIES, INC.
Notes to Consolidated Financial Statements
Continued
- --------------------------------------------------------------------------------
16. Litigation Other Litigation - Continued
Continued Actionable Intelligence Technologies, Inc. v. Eagle
Building Technologies, Inc. (15th Judicial Circuit in
and for Palm Beach County, Florida, Civil Case No. CA
02-03197 AB). A complaint was filed on March 12, 2002,
by a company based in San Diego, California, arising out
of the Company's alleged breach of a contract between
the parties, and seeking damages in excess of $15,000.
The plaintiff claims that the Company owes more than
$820,000 for consulting services rendered, and up to
$5,000,000 for services that were to be performed in the
future. On April 30, 2002, the Company filed an answer
to the complaint denying liability and asserting several
affirmative defenses. Discovery is in its preliminary
stages. No trial date has been set, but the case is
subject to mandatory mediation. Failing settlement, the
Company intends to defend this action vigorously. We are
unable to express an opinion regarding the outcome of
this litigation or as to any potential loss or range of
loss to the Company in the event that either a favorable
or unfavorable outcome results. The Company is presently
substituting the law firm of Adorno and Yoss, located in
Miami, West Palm Beach, Boca Raton and Fort Lauderdale,
and Naples Florida, as counsel in this matter.
Taskin Ticaret, LTD. v. Fleming Manufacturing Company,
Inc. (Circuit Court for Crawford County, Missouri, Case
No. CV100-269CC). A judgment of $119,215 was entered
into against Fleming on May 29, 2002 following a two day
jury trial. Because all of the assets of Fleming serve
as collateral to lending institutions or other secured
creditors, Fleming does not have the authority or
ability to pay the judgment. The matter is on appeal.
- --------------------------------------------------------------------------------
F-29
EAGLE BUILDING TECHNOLOGIES, INC.
Notes to Consolidated Financial Statements
Continued
- --------------------------------------------------------------------------------
16. Litigation Other Litigation - Continued
Continued J.C. Group Corp. and Jose A. Camacho v. Salinas
Developers, Inc., Eagle Building Technologies (Civil No.
G-CD2002-0109; Sala 302). On April 18, 2002, Plaintiffs
J.C. Group, Inc. ("J.C. Group") and Jose A. Camacho
("Camacho") filed a complaint against Salinas
Development Group, Inc. ("SDG"), a Puerto Rico
corporation controlled by the Company and Eagle Building
Technologies, of Puerto Rico, Inc. ("Eagle-PR"), a
wholly-owned subsidiary of the Company in the Federal
District Court of the Commonwealth of Puerto Rico
claiming $1,260,299 plus damages and legal fees. SDG
timely filed the Answer to the Complaint and a
Counterclaim. SDG alleges in its Counterclaim that
Plaintiffs owe $4,110,000 to SDG on account of fund
deviation, false and excessive invoicing and damages.
Eagle-PR filed a motion for summary judgment based on
the fact that it is not liable for the acts of SDG and
that Eagle-PR is not the stockholder of SDG. In
addition, SDG filed a Third Party Complaint against
Camacho for $5,910,000 claiming: 1) poor performance as
project manager; 2) fund deviation; 3) false invoicing;
4) purchase of land in his own name with SDG funds; 5)
breach of fiduciary duty; 6) interference with SDG's
business; and 7) failure to make capital contributions.
On June 20, 2002, Plaintiffs filed an Amended Complaint
against SDG and Eagle-PR, and increased the amount
claimed to $2,872,857, including the lost profits of
Camacho. As of the date of this filing, because of the
complex nature of the matters involved, the outcome of
this case cannot be predicted.
Paul-Emile Desrosiers v. Eagle Building Technologies,
Inc. (15th Judicial Circuit in and for Palm Beach
County, Florida, Civil Case No. CA 02-03431 AA). This is
an action filed against the Company on April 1, 2002, by
the former President and Chief Executive Officer of the
Company seeking damages in excess of $15,000 for
allegedly owed compensation and reinstatement as an
officer and director. The Company filed a motion to
dismiss five of the six counts in the complaint; the
Court heard oral argument on June 28, 2002. On July 25,
2002, the Court dismissed without prejudice the counts
seeking declaratory relief and damages for retaliation,
while dismissing with prejudice the counts requesting
injunctive relief. The only count remaining at the time
of this Report is Desrosiers's claim for Breach of
Contract. Discovery is in its preliminary stages. The
Company is presently substituting the law firm of Adorno
and Yoss, located in Miami, West Palm Beach, Boca Raton
and Fort Lauderdale, and Naples Florida, as counsel in
this matter.
- --------------------------------------------------------------------------------
F-30
EAGLE BUILDING TECHNOLOGIES, INC.
Notes to Consolidated Financial Statements
Continued
- --------------------------------------------------------------------------------
16. Litigation Other Litigation - Continued
Continued Jennifer Nina v. Eagle Building Technologies, Inc. (15th
Judicial Circuit in and for Palm Beach County, Florida,
Civil Case No. CA 02- 4297AE). This complaint was filed
April 10, 2002, alleging claims for unlawful
termination, retaliation, breach of contract and unpaid
wages, and seeking damages in excess of $15,000. On or
about May 6, 2002, the Company filed a motion to dismiss
certain claims, which alleged retaliatory discharge. The
Court, by order entered June 26, 2002, granted that
motion, dismissing those claims without prejudice.
Discovery is in the preliminary stages. A trial date is
set, but the case is subject to mandatory mediation.
Failing settlement, the Company intends to defend this
action vigorously. We are unable to express an opinion
regarding the outcome of this litigation or as to any
potential loss or range of loss to the Company in the
event that either a favorable or unfavorable outcome
results. The Company is presently substituting the law
firm of Adorno and Yoss, located in Miami, West Palm
Beach, Boca Raton and Fort Lauderdale, and Naples
Florida, as counsel in this matter.
Julio Cruz, Jr. v Eagle Building Technologies, Inc.
(15th Judicial Circuit in and for Palm Beach County,
Florida, Civil Case No. CA 02- 005668-AF). This is an
action filed on May 15, 2002, by a former employee of
the Company seeking damages in excess of $15,000 for
wrongful termination, retaliation, unpaid wages, and
breach of contract. The Company filed a motion to
dismiss certain claims, which alleged retaliatory
discharge. The Court has not yet ruled on that motion,
although Plaintiff's counsel has agreed to entry of an
order dismissing these claims without prejudice.
Discovery is in the preliminary stages. No trial date
has been set. A trial date is set, but the case is
subject to mandatory mediation. Failing settlement, the
Company intends to defend this action vigorously. We are
unable to express an opinion regarding the outcome of
this litigation or as to any potential loss or range of
loss to the Company in the event that either a favorable
or unfavorable outcome results. The Company is presently
substituting the law firm of Adorno and Yoss, located in
Miami, West Palm Beach, Boca Raton and Fort Lauderdale,
and Naples Florida, as counsel in this matter.
- --------------------------------------------------------------------------------
F-31
EAGLE BUILDING TECHNOLOGIES, INC.
Notes to Consolidated Financial Statements
Continued
- --------------------------------------------------------------------------------
16. Litigation Other Litigation - Continued
Continued Gina Nicoleau v. Eagle Building Technologies, Inc. (15th
Judicial Circuit in and for Palm Beach County, Florida,
Civil Case No. CA-02- 05675-AH). This complaint was
filed on June 14, 2002, by a former employee of the
Company seeking damages in excess of $15,000 for
wrongful termination, retaliation, unpaid wages, and
breach of contract. Plaintiff's counsel has advised us
that he intends to amend the complaint to drop the
retaliatory discharge claims. Discovery is in the
preliminary stages. A trial date is set, but the case is
subject to mandatory mediation. Failing settlement, the
Company intends to defend this action vigorously. We are
unable to express an opinion regarding the outcome of
this litigation or as to any potential loss or range of
loss to the Company in the event that either a favorable
or unfavorable outcome results. The Company is presently
substituting the law firm of Adorno and Yoss, located in
Miami, West Palm Beach, Boca Raton and Fort Lauderdale,
and Naples Florida, as counsel in this matter.
A.R.H. Family et al. v. Eagle Building Technologies,
Inc., Case Number GN203813, 345th Judicial District,
Travis County, Texas.; La Petrona Ltd. v. Eagle Building
Technologies, GN300161, 250th Judicial District, Travis
County Texas. These suits allege that the Company
fraudulently solicited investment monies from a
syndicate of individual investors organized by their
investment advisor Lee Urbina. The Company takes the
position that the fraud was perpetrated on these
investors by Anthony D'Amato on his own account and
without the knowledge of the Company through the
creation of an investment vehicle entirely under his
personal control, without authorization of the Company,
and for his own purposes.
Eagle Building Technology Inc., v. Zurich American
Insurance Company, 02-22611-CIV-Ryskamp, U.S. District
Court for the Southern District of Florida. This case
approved a settlement between the Company and its
insurance carrier whereby certain funds were released to
the Company pursuant to a binder for D&O and liability
coverage. Under the terms of the Settlement, the former
officers are barred from claiming coverage under the
binder and the funds are available to the Company for
the costs of defending liability claims asserted against
the Company.
- --------------------------------------------------------------------------------
F-32
EAGLE BUILDING TECHNOLOGIES, INC.
Notes to Consolidated Financial Statements
Continued
- --------------------------------------------------------------------------------
16. Litigation Other Litigation - Continued
Continued IMSI, Inc. v. Eagle Building Technologies, Inc., U.S.
District Court, Central Division, Utah. The suit seeks
damages and an injunction for alleged infringement of
IMSI patents related to the Company's use of the IMSI
system in Puerto Rico. The Company is of the view that
the claims have no merit. The Plaintiff has not moved
for specific relief in connection with the Company's
projects in Puerto Rico.
Threatened Litigation
Claims by Cheryl Ray. Ms. Ray is the surviving spouse of
Herbert Ray, a founding member of IMSI. Upon Herbert's
death, Ms. Ray received 2,000,000 IMSI shares. In
January 1999, Ms. Ray agreed to exchange her IMSI shares
for Eagle Shares. Ms. Ray alleges that in June 2000,
Anthony D'Amato, then President and CEO of Eagle,
informed her that her original IMSI shares were being
cancelled and that there had been insufficient
consideration for the 1999 stock exchange. According to
Ms. Ray, she then agreed to return all but 500,000
common shares. Ms. Ray now alleges that she was
defrauded by Mr. D'Amato and Eagle. In November 2001,
she issued a demand letter for $2,500,000, or the value
of her original shares. In February 2002, Ms. Ray
threatened legal action.
17. Related Party During the years ended December 31, 2002 and 2001, the
Transactions Company issued 74,667 and 532,472 shares of common stock
to its president and chief executive officer for
services and or payment on notes payable, respectively.
The Company operates in China while holding additional
licenses for Mexico, India, Puerto Rico and Europe
pursuant to five (5) licensing agreements with
Integrated Masonry Systems International, Inc. (IMSI).
The Company owns thirty-eight percent (38%) of the
issued and outstanding shares of IMSI.
- --------------------------------------------------------------------------------
F-33
EAGLE BUILDING TECHNOLOGIES, INC.
Notes to Consolidated Financial Statements
Continued
- --------------------------------------------------------------------------------
17. Related Party During the period commencing October 2000 to July 2001,
Transactions Mr. D'Amato converted loans in the amount of $2,397,416
Continued to the Company into 789,879 shares of restricted common
stock.
On January 26, 2001, the Company's Board of Directors
approved a 1-for-6 reverse stock split of the Company's
common stock effective February 5, 2001.
During the period ended December 31, 2001, primarily in
July 2001, Meyer A. Berman and affiliates of Meyer A.
Berman, Chairman of the Board of Directors, loaned the
Company a total of $3,340,000. In addition, Mr. Berman
personally and through various entities controlled by
Mr. Berman made various short-term advances to the
Company through-out 2002 and 2001 which as of
December 31, 2002 and 2001 totaled approximately
$6,700,000 and $1,380,000. During the period commencing
January 1, 2003 through June 30, 2003, Meyer A. Berman
and affiliates of Mr. Berman loaned the Company an
additional approximate net amount of $900,000. In
February 2002, Andy Berman and Abby Berman, children of
Meyer A. Berman, loaned the Company a total net amount
of $240,000.
During May 2002, Mr. Berman contributed $310,000 of
capital to the Company. This sum represents imputable
short swing profits and proceeds of sales of the
Company's stock by M. A. Berman and affiliates as a
source of working funds given to the Company to support
operational needs during the second quarter of 2002.
Pursuant to Section 16 (b) of the Securities Exchange
Act, such imputed profits are irrevocably committed to
the Company by Berman. These transactions are the
subject of litigation.
During the period ended December 31, 2001, the Company
had unsecured advanced receivables in the aggregate
amount of $934,645 from its former Chairman and CEO,
Anthony D'Amato.
In February 2002, Don Pollock, an executive officer and
director claims to have loaned the Company $40,000.
In April 2002, Martin Shubik, a former director, loaned
the Company $30,000.
In May 2002, the Company assigned all of its interest in
Business Dimensions, Inc. to Don Pollock, an officer and
director of the Company.
As a result of the Company's investigation in connection
with the restatement of its 2000 and 2001 financials,
the Company believes that there may be third parties to
whom Anthony D'Amato, the Company's former Chairman and
CEO, has obligated, or made representations purporting
to obligate, the Company, or to issue equity in the
Company without the knowledge or authorization of the
Company's Board of Directors. The Company will continue
to investigate and determine the validity of any such
third party claims on a case by case basis. At the time
of this filing, the Company cannot determine the
financial impact, if any, to the Company as a result of
Mr. D'Amato's actions.
- --------------------------------------------------------------------------------
F-34
EAGLE BUILDING TECHNOLOGIES, INC.
Notes to Consolidated Financial Statements
Continued
- --------------------------------------------------------------------------------
18. Fair Value of The Company's financial instruments consist of cash,
Financial receivables, payables and notes payable. The carrying
Instruments amount of cash, receivables and payables approximates
fair value because of the short-term nature of these
items. The carrying amount of the notes payable
approximates fair value as the individual borrowings
bear interest at floating market interest rates in
aggregate.
19. Segment The Company operates in the following business segments:
Reporting block and wallsystems, block equipment, real estate
development, and security doors.
Year Ended December 31, 2002
-------------------------------------------------------------------------------
Block & Wall Block Real Estate Security Total
Systems Equipment Development Doors
-------------------------------------------------------------------------------
Revenues $ - $ 2,928,164 $ - $ - $ 2,928,164
Cost of sales - 2,435,531 - - 2,435,531
Selling, general and
administrative 9,386,379 1,267,606 - - 10,653,985
Impairments 6,336,022 - - - 6,336,022
Loss before taxes (17,896,570) (371,821) - - (18,268,391)
Identifiable assets 2,389,322 3,717,789 4,592,157 - 10,699,268
Capital expenditures 106,000 10,422 - - 116,422
Year Ended December 31, 2001
-------------------------------------------------------------------------------
Block & Wall Block Real Estate Security Total
Systems Equipment Development Doors
-------------------------------------------------------------------------------
Revenues $ 13,948 $ 3,388,967 $ - $ - $ 3,402,915
Cost of sales - 2,917,864 - - 2,917,864
Selling, general and
administrative 10,172,396 1,079,164 - - 11,251,560
Impairments 2,718,527 - - 3,581,183 6,299,710
Loss before taxes (17,449,017) (373,816) - (3,581,183) (21,404,016)
Identifiable assets 6,151,303 5,523,055 3,815,219 386,820 15,876,397
Capital expenditures 209,515 69,176 - - 278,691
20. Recent In April 2002, the FASB issued SFAS No. 145, "Rescission
Accounting of FASB Statements No. 4, 44, and 64, Amendment of SFAS
Pronounce- No. 13, and Technical Corrections." This Statement
ments amends existing authoritative pronouncements to make
various technical corrections, clarify meanings, or
describe their applicability under changed conditions.
This statement became effective on May 1, 2003 and does
not have a material impact on the Company's operating
results or financial position.
In November 2002, the FASB issued FASB Interpretation
No. ("FIN") 45, "Guarantor's Accounting and Disclosure
Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness of Others." The disclosure
requirements of FIN 45 were effective for financial
statements of interim or annual periods ending after
December 15, 2002 and did not have a material impact on
the Company's consolidated financial statements.
- --------------------------------------------------------------------------------
F-35
EAGLE BUILDING TECHNOLOGIES, INC.
Notes to Consolidated Financial Statements
Continued
- --------------------------------------------------------------------------------
20. Recent In November 2002, the Emerging Issues Task Force
Accounting ("EITF") reached a consensus on Issue No. 00-21,
Pronounce- "Revenue Arrangements with Multiple Deliverables." EITF
ments Issue No. 00-21 provides guidance on how to account for
Continued arrangements that involve the delivery or performance of
multiple products, services and/or rights to use assets.
The provisions of EITF Issue No. 00-21 will apply to
revenue arrangements entered into in fiscal periods
beginning after June 15, 2003. The adoption of this
consensus is not expected to have a material impact on
the Company's consolidated financial statements.
In December 2002, the FASB issued SFAS No. 148,
"Accounting for Stock-Based Compensation -Transition and
Disclosure-an amendment of FASB Statement No. 123." This
Statement provides alternative methods of transition for
a voluntary change to the fair value based method of
accounting for stock-based employee compensation. In
addition, this Statement amends the disclosure
requirements of Statement 123 to require prominent
disclosures in both annual and interim financial
statements about the method of accounting for
stock-based employee compensation and the effect of the
method used on reported results. This statement became
effective on December 15, 2002 and does not have a
material impact on the Company's operating results or
financial position.
In January 2003, the FASB issued FIN 46, "Consolidation
of Variable Interest Entities." FIN 46 requires the
Company to consolidate a variable interest entity if it
is subjected to a majority of the risk of loss from the
variable interest entity's activities or entitled to
receive a majority of the entity's residual returns, or
both. The Company does not believe it has any interests
in variable interest entities and, accordingly does not
expect the adoption of FIN 46 to have a material impact
on the consolidated financial statements.
In May 2003, the FASB issued SFAS No. 150, "Accounting
for Certain Financial Instruments with Characteristics
of both Liabilities and Equity." SFAS No. 150
establishes standards for how an issuer classifies and
measures in its balance sheet certain financial
instruments with characteristics of both liabilities and
equity. It is effective for such financial instruments
entered into after May 31, 2003, and otherwise is
effective at the beginning of the first interim period
beginning after June 15, 2003. The Company is currently
evaluating the effect of SFAS No. 150 on its financial
Statements.
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